Why Retailers Fail!

Think about it. Retailers are falling by the wayside on a regular basis. And it’s not a new phenomenon. It’s been happening since there were retailers and the cause is almost always the same.

Retailers know their customers, so they know what to buy for them. They know how to do displays that will entice them and encourage them to buy. They know how to promote to bring them in and they know how to set up their stores to make the shopping experience pleasurable.

So, what’s the problem?

A retail business is pretty simple. Merchandise is purchased, marked up and put on the sales floor. When it is sold, it should generate enough money to pay the vendor for the merchandise, contribute to paying the overhead (rent, labor, advertising, utilities, taxes, etc.) and leave a profit. If that sounds easy, it really is. The problem comes when more merchandise is purchased by the retailer than can be sold. When that happens, there is not enough cash to pay the vendors and/or the overhead, and certainly not enough to yield a profit.

In order to move the excess merchandise and generate cash to pay bills, retailers will put merchandise on sale (take markdowns). While this will raise some short term cash, it creates problems. A big problem is training your customers to be “sale” shoppers, but the biggest problem is when the prices are reduced, there might be enough to pay the vendors, but not enough to pay the overhead, so one or the other (or both) have to wait and that causes more problems. At some point, there’s just too little cash and too many payables and retailers have to close.

Retailers can avoid these problems by harnessing their urge to overbuy with open to buy planning. When a retailer lets lose their creativity, style, and flair within the confines of a numerical plan based on anticipated sales and desired turn rates, they are headed for success rather than failure. Open to buy planning will guide a retailer to buy the right quantities in each merchandise category for delivery at the right time.

Simply put, open to buy planning is a formula for success.

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