web site updated 3 July 2007
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web site updated 3 July 2007 |
     
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Markdowns vs. Discounts This is an important retail distinction that your ePoS system should handle properly. A markdown is a devaluation of a product based upon its inability to be sold at the original planned selling price. A discount is a reduction in the price of an item or transaction based upon the customer making the purchase. Examples of this would be employee, senior, and frequent-buyer discounts. If you use the retail part of your ePoS system for analysis and making decisions, the inability of the system to properly account for this could lead to bad decisions. Let’s say that your buyer finds some really great shirts at a cost of $20 with a planned selling price of $50 (60 % IMU). However, several employees find these same shirts to their liking. With an employee benefit of cost plus 10% for personal purchases, several of these shirts were sold at $22. Later, the buyer performs an evaluation and discovers that ending gross profits were closer to 35% instead of the planned 60%.
Open-to-Buy OTB (Open-to-Buy, not Off Track Betting) As I wrote earlier, setting prices can have a short-term impact on improving retail health. However, there is another important aspect that can lead to long term improvement of your retail shop. Open-to-Buy is what is needed. If you have knowledge of spreadsheet capabilities for adding and averaging, this should be a breeze. Simply stated, an OTB is a three-step budgeting process for setting inventory levels, typically by department/class and by month. The first step is developing a sales plan (at retail) by month. Step two is determining inventory levels needed to meet each of those sales goals. Step three, the actual OTB, is the amount of new inventory needed to get to the next month’s planned inventory level. So steps 1 and 3 are “relatively” simple.
Retail Accounting's Impact on Inventory If you are like most golf retailers, you probably need to review some basics tenets of accounting to understand accounting’s impact on some of our decisions. Specifically, we will address the Profit and Loss Statement. Rather than think about dollars on the P&L, focus on the percentages.
Mill River Plans Specialty retailers can skip this article, unless you either want a good laugh or a reason to slit your wrists. We’ re losing money, but we make up for it in volume. First, let’s define what a Mill River Plan is. In some private clubs, members fork over $100 to be able to purchase merchandise at cost plus 10%. According to my math, that means a 9.1% attained margin. However, on the first day of the season, you have $40,000 from the initial fee from 400 members. This is the best day of the year and my suggestion is to take off for Maui (Kapalua is my favorite place–see Gary Planos) OR buy a lot of lottery tickets.
Setting Retail Pricing Whenever I work with a new client, they usually lack profits and have excessive inventory. The excessive inventory is a longer project, usually taking six months to one year to get on track. That step involves the establishment of a sales plan and an Open-to-Buy plan. However, there is a quick fix that can have a fantastic impact for a retail shop. That involves establishing a pricing model.
Your Three Retail Customers Remember our two merchandise buyers from last month? One held out for higher profits and the other unloaded and reloaded. Another major benefit of the second approach was that there was fresh merchandise coming in to the shop throughout the year and it attracted potential customers to come in to see the new inventory. The other shop had the same stale merchandise and people stopped looking. This concept plays right into the hands of attracting the three people that I recognize as retail customers. The first one is the person who wants the most recent products. They are willing to pay full price because wanting to be first drives them to their decisions. The second person is the one who knows what they want. They do not care if it is two years old, how much it costs or if their best friend has it, they want it. The last person is the bargain hunter and is probably the most important of them all. They buy your mistakes and allow you to reinvest. This turnover of investment is what attracts the first two customers to come back. Think of it this way, customers one and two pick the best of your inventory and the third one buys their rejects. This gives you cash flow to start the cycle anew.
What is Missing in Retail Systems Last month, I pointed out that most retail systems were focused in the wrong direction when it comes to inventory management. So what is missing? A lot of valuable statistics, that’s what. But if I could only have one statistic from a retail package, it would be the Stock Turn Rate (STR) and you should hear the Hallelujah Chorus in the background when these words are spoken. It measures how many times an invested dollar is sold over a year.
Retail Isn't Detail As a veteran of systems sales in both golf and specialty retail (primarily apparel), I am amazed to see what many software providers believe inventory management is. I guess I should not be surprised since many of these companies have sought the advice of customers to build and modify their products. Let’s face it; green grass golf retailers did not get into the business to open a retail store. They did it because the golf course had to have a place to collect green fees and sell some products needed by golfers. Retail experts, they are not. But don’t feel slighted; most retailers have little more insight into inventory management.
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