Is a shortage of cash holding you back from doing what it takes to grow your business? For many independent retailers this is their main problem. By the time they have sunk the majority of their capital into leasehold improvements, furniture and fixtures, and inventory, there’s not much left to keep building the store’s business.
The money invested in leasehold improvements, furniture and fixtures is gone. There is no recovery of these dollars. The dollars you have spent to fix up someone else’s building will never be recovered. The expensive store fixtures you purchased to give your store just the look you wanted are essentially worthless. (Just check the market on used fixtures if you want to get depressed.)
There is a bright side to all of this, because the money you spent on inventory can keep you afloat if properly controlled. The problem is that most retailers are over-zealous about the need to keep huge inventories. “We don’t want to miss a sale, do we?” This fact creates a problem that spells financial disaster for most small to medium sized retailers. More inventory does not equal more sales. More customers will equal more sales.
Unless you are very rich, and most retailers aren’t, you need to perpetuate your business with your inventory. Every time you sell an item, a portion goes to the manufacturer, there is a contribution to overhead, and some profit is also garnered. Of course, this only happens when items are sold at full price. If marked down, depending on the amount of the markdown, profit and overhead contribution may be lost. Without profit, there is no reason to be in business. Without the contribution to overhead, continuing may not be an option.
So, how do you grow your business? With more inventory? Certainly not. Your business will grow when you attract more customers and sell more inventory. Well, you might be thinking, that will require more inventory. Ultimately yes, initially no. There is the problem facing most retailers. They optimistically buy inventory hoping for sales, rather than realistically projecting sales and buying inventory to support those sales. Sort of the cart before the horse. This over-abundant inventory creates cash flow problems because the dollars needed to promote and attract customers are buried in excess merchandise.
All retailers love to buy. To walk through your store brimming with merchandise of our choice is very satisfying. Much of our “power” comes through our relationships with the manufacturers representatives. The more we buy, the stronger we feel. Until the bills come due. Almost every retailer has too much inventory, too many bills and a shortage of cash. Turning that excess inventory (buried treasure) into cash is one part of the puzzle, keeping it at the right level is the other.
To attract more customers, you must promote. This is a fact of life. And you must continue to promote because you always want a supply of new customers. Nurturing your present customers is extremely important because they will help you spread the “good news” about your store. But they will age, move away, change in many ways that can diminish or terminate your relationship, so there must be a constant supply of new customers to maintain and increase your business.
Promoting is expensive, and the choices are many. Defining your customer and your market area is extremely important. Don’t spend your dollars on promotions that reach more than your target market. Mass media may be too broad for you, depending on your size. Another factor to be considered is visibility. It is better to be a big fish is a little pond than a small fish is a big pond. Your message must be seen or heard to be effective. Just having it “out there” is not good enough. You must be focused on results because advertising is taking profit dollars.
So where do you begin. Well, you have two starting points. One is to begin to assemble and evaluate information detailing promotional options that meet your criteria. The other is to evaluate your inventory position and prepare a plan to turn excess inventory into cash and control future buying to support sales rather than to fill space.
As far as a promotional plan is concerned, figure out what you want to accomplish and who you want to reach to most effectively reduce your inventory position and attract new customers. Obviously, these two goals will require different methods. You don’t really want to attract new customers with sales because that creates a “sale mentality” that may be a negative for regular priced sales. Let new customers know about your style, selection, service, parking, etc. Let them know what a pleasure it is to shop in your store rather than being treated impersonally in an outlet operation (if treated at all). Let your loyal customers know of your special pricing and treat it as a reward for their patronage.
Your media choices are almost endless. Radio, television, newspapers, magazines, mailers, flyers, press releases, emails, the internet, etc. Whatever you choose, make sure it hits your target audience with the most effective message at the most reasonable price.
And now you might be asking, “Just how do we finance this promotion?” Good question, and one that evokes the age old question of which came first, the chicken or the egg. If you have available funds, they should be directed toward promotion. Start small, experiment, check your response and results. Don’t get caught up in seeing your image in an expensive publication that only marginally hits your audience. Frequency is more important than size as long as your message is clear and seen.
For most retailers, the promotional dollars must come from the excess inventory. This buried treasure contains the future success. The “map” to the treasure is “open-to-buy”. Open-to-buy will enable any retailer to develop an inventory and buying plan based on anticipated sales and desired turnover rates. Upon setting up your open-to-buy plan, you will see where you are over-stocked (and under-stocked). This information will help you develop a sales and promotional plan to bring yourself into line. These excess dollars will not go back into inventory, but will become available for promotion, staffing, better displays, etc. Your open-to-buy plan will also develop your future buying plan and allow you to evaluate any outstanding orders. Correcting any imbalances in your orders can make an enormous difference in your cash flow in the months ahead.
Unlike buried treasure, excess inventory does not increase in value. To the contrary, it is depreciating from the moment it arrives in your store. This is another important reason for having open-to-buy. Keeping your inventory fresh and turning is the key to successful retailing. Only open-to-buy planning will insure that you buy the right quantities and keep your inventories lean, balanced and providing you with the funds to constantly promote and increase your customer base and your sales. With open-to-buy you will build a treasure, not bury one.