Now more than ever retailers need to get their house in order and keep their inventory lean and mean. As the effects of the cuts and taxes trickle down to the consumers, they will tighten their purse strings and do without the “elective” buying that your store may be depending on.
There’s little you can do about your rent, utilities and most overhead expenses. The first thing that retailers tend to cut back on is their staff. That’s a huge mistake! There’s nothing less inviting than a store with no one to wait on you. More inventory will not equate to more sales, but having properly trained and motivated workers will mean more sales. Sales that you need.
You can cut back on promotion, but that’s a little self-defeating as you want everyone to know you’re there and to come and see what you’re offering. You can be smarter with your promotion dollars, but you don’t want to cut them off.
So, if you don’t cut your staff and you don’t cut your promotion, where can you help yourself to insure you get through the tough times? Your inventory!
Most retailers, if they’re being honest, realize that they are over-bought and over-stocked. That chokes off current and future cash flow. It also means that profits and working capital are tied up in non-productive, depreciating inventory. So, in order to survive and succeed during the coming downturn or really any period (up or down), you must plan your buying so that you’ll be getting the biggest bang for your buck.
That means turning your inventory (your dollars) as frequently as possible so they will pay your suppliers, contribute to overhead and also to profits. Think about this: if you invest $1.00 in inventory and turn it once a year (at a keystone markup), you will take in $2.00, sent $1.00 to your supplier, spend 80¢ on overhead and put 20¢ toward profits. If you turn that same $1.00 twice a year, it produces $4.00 in sales, $2.00 sent to your supplier, $1.60 toward overhead and 40¢ in profits (from the same single dollar). Of course, as the number of turns grows so does your contribution to overhead and profits.
Also keep in mind that markdowns are really detrimental to your cash flow. Every time you mark down an item, you eliminate the contribution to overhead and profit.
So, it is to your advantage to turn every dollar invested in inventory as frequently as possible. Not only is it financially advantageous, but when your inventory is turning more frequently, it’s fresher, more current, more appealing and demands to be purchased. Your customers will be more encouraged to make a purchase when they see your merchandise is moving quickly. And higher turnover eliminates markdowns.
As you might have guessed, the punch line is how to do this. There’s only one way and it’s open to buy planning. With OTB, you are anticipating sales and buying the right quantities to support them at the turn rates you desire. With OTB, it’s easy and sadly you can’t just do it in your head when you sit in front of a vendor. It’s a process that needs upkeep – not that much, but some. But the results are well worth the extra effort.
