How can we get rid of markdowns? Short answer: “you can’t!” Retailers are human and will always make mistakes. Some will buy what they like, some will buy what the rep suggests, some will buy by committee, but no matter what, there will always be those items that wind up in your store that make you say; “What was I thinking?”
But that’s the least of it – the mistakes. The bigger problem, the one that sinks retailers, is overbuying. Too much of a good thing is a bad thing. When you are encouraged to buy MORE, and you do, you are setting yourself up for markdowns.
Markdowns have become a way of life for retailers. They are used to fight the competition, to bring in new customers, to bring in old customers, to fight online retailers, and, of course, to get rid of buying mistakes. Markdowns kill your profits. Depending on how much of a discount you’re offering, the markdown will not only eliminate your profit, but will probably eliminate the contribution to overhead that that item should have made. While profits can be eliminated, the overhead must be continually paid. So, to create the needed cash for overhead, more markdowns are taken and that just brings on a negative cash flow spiral that never ends.
An open to buy plan will solve these problems in two ways. First, your open to buy plan will tell you how much merchandise you need in each merchandise category each month for the next 12 months. If you follow your plan, you will put an end to overbuying. Because the plan is based on YOUR anticipated sales and YOUR desired turn rates, the quantities of merchandise it suggests you buy will be correct. Second, if you stay within the plan limits, you will be forced to be a more discriminating buyer. Since you have a limited budget, you will be sure to pick the best of what’s available to meet your dollar plan. No more just buying MORE!
Nothing is perfect, but using open to buy planning as your buying guide will bring you dramatically closer to reality and help you bring your markdowns as close to zero as possible. This will insure a constant flow of cash to pay your vendors, your overhead, and yourself!