Over the years I have spoken with thousands of retailers. And for the most part, they all think because they know their customers, they know their store, and they know the market, that they know how to buy.
Unfortunately, they only have it half right. While all of the above knowledge is of great value in selecting items, it will not stop retailers from buying the wrong quantities. And that means too much or too little. Both create problems. If you buy too little, you miss sales. If you buy too much, you will have cash flow problems.
The smart retailers realize that they need a system that will guide them to buy the right quantities while harnessing their creativity to meet the needs of their customers. Every store is unique as is every retailer. That’s what makes retailing so enticing to so many creative people. Each day is a new opportunity to make a creative expression.
So, with the store as your palette, how much paint do you buy so you won’t run out and you won’t have left over buckets and excess bills after you have sold your painting. You pick the colors; let “open to buy” plan the quantities. It’s always a winning combination.
The same is true with your merchandising. You need to plan or anticipate the sales you expect so you will have enough merchandise to support them. Not too much or too little. You also have to consider turnover because turnover is the way to make money in retail. Too many retailers forget about this critical element in the mix and that’s a big problem.
The first step in understanding turnover is to begin to look at all of your merchandise as dollars, your dollars. Sure, you see items that you have selected for your customers to get excited about, but ultimately those items represent three financial elements – your cost, your contribution to overhead, and your profit. So, your job is to turn over those items to release those three financial elements.
Unfortunately, profit is last in line because your vendors must be paid if you want a continuing flow of merchandise (and a good credit rating), your overhead must be paid (rent, staff, utilities, advertising, etc.) if you want to keep your doors open, and finally comes your profit.
But if you buy too much, you will be faced with excess invoices and will be forced to take markdowns to raise the cash to pay the bills. Your first loss is your profit and then your contribution to overhead (depending on the amount of price reduction of the markdown). With that in mind, it bears repeating: “You can’t do it in your head!”
It is crucial that you have a plan based on anticipated sales and desired turn rates to guide your item selection. This will not take anything away from your creativity. In fact, once you have a buying plan in place, the fact that you now have limits on your buying will force you to be a better item selector. Now you will only order the best available merchandise from the best vendors to meet your dollar plan.
If you do this – combine your creativity with the common sense of an open to buy plan – you are on the path to exciting and satisfying your customers, while paying your bills in a timely fashion and having a profit at the conclusion of every month. Truly a win / win.