Industry Statistics – Should they concern you?

I just spoke with one of my clients who had sent me turnover (and other) statistics from his chosen retail industry. I have seen industry statistics for almost all retail specialties as for many years I was giving seminars to retailers at their trade shows.

My customer was in a quandary because the turn rates for his industry were very low (below 2 times per year) and so were his. I tried to explain, as I have done with so many others, that these statistics are basically useless. Who cares what they show? They are across the board averages for all reporting stores in all cities in all climates. Do those statistics represent your store? Should they make you feel you’re doing OK? NO!

The biggest problem with those numbers is that most retailers see turnover as an indicator of how well they move a product. And while that’s definitely a part of it, I have been encouraging my customers to consider their stores as being stocked with dollars rather than inventory. Your job as a retailer is to turn over your dollars as frequently as possible so you are able to pay your vendors, make greater contributions to overhead and make bigger profits.

“But we have to order six months in advance, so we can only turn our inventory twice a year!” Again, thinking about turning your inventory is different from thinking about turning your dollars. Even if you can only order and receive merchandise twice a year, you can turn your dollars more than twice. And you can achieve this with a properly constructed buying plan that relies on desired turnover as well as sales projections.

Vendors that require huge lead times will also offer dating. A properly prepared buying plan will allow you to take advantage of the dating by receiving the merchandise whenever the vendor has scheduled shipping, but bringing it onto the sales floor according to your buying plan and putting that portion of the invoice in line for payment 30 days later and saving the “anticipation” discount for paying before the final due date.

Actually, waiting to pay dated invoices puts a retailer in the hole as the money generated by the sale of the merchandise is used for other expenses and when the bill does come due, the retailer must scramble to raise the money to pay the invoices and this generally means markdowns.
So, all retailers need to view their investment in inventory not as merchandise for sale, but as dollars to be turned.

If you do this, you will be exploiting one of the main reasons to be in retail over some other form of investment. You can control the rate of turnover by building your buying around turnover. If you do that, you will be able to laugh at those depressing industry statistics (all the way to the bank).

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