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Are You Open To Buy?

I’ve written about Open-to-Buy programs for Independent Retailers and how difficult they are to manage.

For those of you who have also struggled with the OTB’s and want a simpler, more intuitive way to manage inventory and cash, here is a plan you can follow…

First, understand that the ultimate goal is to have the right products at the right time at the right price. There are three simple rules that apply no matter what…

  1. Don’t out-buy your terms. If you get Net 30 (30 days to pay the bill), try not to buy more than 30 days worth of products.
  2. Don’t buy anything you don’t want. Padding an order just to reach a new discount level rarely works. You usually end up marking down those extra items that you were never fully convinced of carrying and lose any discount in the process.
  3. With the exception of December Dating (for businesses that do most of their sales during the holidays), smaller orders done more frequently is always better than one or two really big orders per year, regardless of the specials.

Post those rules at the top of any OTB plan you decide to use. With those rules in mind, here is my plan…

PHIL’S SIMPLE OTB

Rank Your Vendors

The first thing you need to do is rank your vendors. Split them into three tiers.

  • Tier #1 – your top-selling vendors that help define your store, have the most of your ‘must-have’ products, sell through the fastest.
  • Tier #2 – your second level of vendors who have great products that you love to carry and sell, who are profitable and have generous terms, and who have a few of your ‘must haves’.
  • Tier #3 – all of the other vendors who are left including seasonal customers.

By knowing this information, you have a better idea of which vendors deserve more of your attention so that you do not spend your limited resources in the wrong places.

Break it Into Quarters

The next thing you should do is break up your buying schedule into the four quarters. Plot them out on a calendar. You can use the standard calendar quarters (Jan-March, April-June, etc) or break it up whichever way makes sense for your business. Some summer-based businesses consider June-August to be their “4th quarter”.  Label each quarter with what is most important for that quarter. For instance, you might label 1st quarter “Prepping for Easter”, 2nd quarter might be “Outdoor and Summer”, 3rd quarter might be “New Releases” and 4th quarter could be “Christmas!!!”

Just by labeling each quarter you get a clearer picture in your mind of where you need to focus your dollars. The mental aspect of this simple activity will alone make a huge difference.

Schedule Your Vendors Each Quarter

Here is the meat. After you have done the first two steps, take your tiered vendor list and write into the first month of each quarter all of your Tier #1 vendors. Write Tier #2 vendors into the second month. Write Tier #3 vendors into the the third month.

You’re almost done.

Now look at each quarter a little more closely. If there is a Tier #2 vendor that is more important to that quarter, move it to the first month. But be sure to move a Tier #1 vendor to the second month to compensate. Do the same with any Tier #3 vendors, especially the seasonal vendors.

Now you have a comprehensive buying schedule to follow for your year that will help you manage your inventory and cash flow a whole lot better.  Each month simply look at your list of vendors and write your orders accordingly – being sure to follow the rules at the top.

Adjust, Adjust, Adjust

Sure, you will have to adjust regularly. You might get to a new quarter and find you don’t need to order a line, or you might run out before the quarter is up. All OTB’s require constant juggling and tweaking. Just remember that for each time you add a vendor onto that month’s buying list, you should move a different vendor out to compensate. By having a list, you are now making those choices consciously.

Sure, sometimes you cannot buy within the terms, or sometimes you need to over-buy just to make sure you have enough product for the busy season because you know the company will run out. Those issues will usually be offset by the line that moves so fast you find yourself writing eight to ten orders per year.

Sure, sometimes your cash will be tight. you might spend it all up in that first month of the quarter. But at least you spent it on the most important lines for your business.

If you follow the guidelines as much as possible, you will see the payoff in the long run.

Results

If you are placing at least four orders per year for all of your vendors, your Turn Ratio will likely outpace your industry (most hard-goods retailers like clothing, toys, hardware, furniture, etc expect about a 2.5 to 3.5 turn ratio – perishable goods like florists and grocery have much higher terms and much different OTB’s – and  four orders per vendor per year typically yields a 3.6 turn ratio or higher). 

This will increase your cash flow, while also keeping your store well-stocked.

Remember, Cash is King (and you are the adviser!)

-Phil Wrzesinski
www.PhilsForum.com

PS For more on how to manage your inventory better including an understanding of how to calculate Turn Ratios and Gross Margin Return on Inventory, download my free eBook Inventory Management.

PPS For a list of Turn Ratios by industry go to this article on Rick Segel’s blog.

Do This Math – Now!

Do this math.  It is easy.  If you have a POS system worth a damn, it is really easy.

On the first of every month run a report that shows you your total Inventory at Cost that you have on hand.  Write it down.  Put it in a spreadsheet.  Just collect that number Every. Single. Month.

It comes in handy when you want to know whether you are getting the proper return on the money you spend on inventory, whether your inventory is too high or low, how your inventory (and hence cash flow) fluctuates, and when you need to think about having a sale.

Most POS systems don’t actually track this number over time, only what you have on hand today.  So on the first of the month, after you say “Rabbit”, find out your Inventory at Cost.

-Phil Wrzesinski
www.PhilsForum.com

PS  How does that number come in handy?  To calculate your Turn Ratio and Gross Margin Return on Inventory, you need to know your Average Inventory at Cost (those 12 numbers added together and divided by 12).  I figure if I remind you now, you won’t have to do as much digging to get the numbers from the first 6 months of the year.

PPS  My 4th grade teacher taught us that if you say “Rabbit” as the first word out of your mouth at the start of the month, you will have good luck all month.  I’ve been doing it for over 30 years (who says you don’t remember what you learn in school?) and it works.

Monthly Chores

Today I…

  • Balanced the store’s checkbook
  • Ran Sales Reports by department
  • Measured GMROI by department
  • Ran current Balance Sheet
  • Ran Profit & Loss for the month and year-to-date
  • Sat down with my buyers to make sure we were on track
  • Monitored Cash Flow*

I’m not bragging.  I’m not even saying I liked doing any of those things.

I am more Big Picture than I am Data & Details.  But it takes Data & Details to draw the Big Picture.  So I spend a few hours on the first of each month drawing the Big Picture with all of that Data & Detail.

Keeps the Big Picture clear in my head.

You, too?

-Phil Wrzesinski
www.PhilsForum.com

*I actually do this daily, not monthly.


PS  The hyperlinks above take you to a couple really cool documents that help you understand those calculations.  Most people won’t bother to click on those links.  But then again, you are not most people.

That Kind of Customer

Don’t you just hate the customer who walks in, looks around, and then asks, “What kind of deal can you make me?”  No deal, no special, they aren’t buying.  Not only that, they are walking out grumbling as though you missed the boat. Everyone else has a special. Why not you?

Let me ask you this…

Would you rather have a customer who comes in once a month and spends $50 on regular priced merchandise or a customer who comes in twice a year to buy $315 worth of merchandise for $300?

We hate that second customer, don’t we?  Can’t stand seeing them walk through the door.

Yet we are all guilty of being that kind of customer.

I’m attending a conference and trade show for the juvenile products industry this week.  In a couple days I will walk the trade show floor asking every vendor what kind of incentive they will give me to place an order.  5% off?  Free freight?  Extended dating?  All of the above? Go big or go home.

And the vendors look at me the same way I look at my customers who do that.

Here is the funny thing…  Unless the deal is really big, writing two orders a year is the surest way to put you in the poor house. It’s bad for cash flow.  It’s bad for product mix.  It’s bad for flexibility for your store.  When you place orders that big, you tie up a lot of money, a lot of showroom, and a lot of warehouse space under the hope you can sell it.

But what if you don’t?

Your store will actually have more cash, more flexibility, and more profit if you made six or more smaller orders at full price than two big ones at minimal discounts.  First, you would have more flexibility to always be in stock if one item starts selling fast.  Second, you would have less dogs to markdown when an item dies on the vine.  Third, you would have the cash in hand to pay for the order before the terms came due.

And finally, you would become the kind of customer your vendor wants to do business with.

Be that kind of customer.  It will improve your relationships with your vendors and bottom line.

-Phil Wrzesinski
www.PhilsForum.com

PS  But still ask for those discounts when you do go to the trade shows.  Just don’t stretch your order to get them. More often than not you’ll lose all the discounts by buying stuff you don’t want or can’t sell. Better yet, ask for smaller minimums so you can make more small purchases throughout the year instead of just waiting for the next trade show.  For more on how to manage your cash flow and inventory download my FREE eBook Inventory Management

The Busy Season

As a toy retailer everyone expects that my busy season is December. They would be wrong.

December is the store’s busy season. My busy season is right now. Here is my October To-Do List:

  • Place all my orders for product I expect to sell in December. If I wait too much longer, many of the best items will already be sold out.

  • Hire and train my seasonal staff. This involves writing and placing ads to attract applicants, weeding through all of the applications, scheduling and doing interviews, doing background and reference checks, setting up a training schedule, updating the employee handbook, and doing the actual training. It also includes refresher courses for the regular staff.

  • Place orders for all selling supplies. I need to make sure I have plenty of bags, giftwrap, price tags, receipt paper, toilet paper, paper towels, layaway string, tape, etc. to get through the holidays. Do it now or forget and not have it when you need it.

  • Prepare my marketing campaign. I need to write/create/produce/schedule all of our marketing for November and December. This includes promotional events like Neighborhood Toy Store Day, the Downtown Christmas Parade, Discover Downtown Again Day, and the Toys for Tots Breakfast. This also includes writing radio ads and planning a Facebook campaign.

  • Carefully plot out cash flow. The money rolls in during December. The money rolls out during October and November as we stock up for the holidays. That means I have to pay close attention to every penny I spend.

  • Clean up. The entire store needs a fresh and thorough dusting. Displays need to be upgraded or moved out. Merchandising needs to be plotted and planned for all the new products coming in.

Yes, my busy season is right now. After I accomplish all those things over the next few weeks I’ll have plenty of free time in December to do what I do best – sell toys.

-Phil Wrzesinski
www.PhilsForum.com

PS I wrote this list as much for MY benefit as for YOURS. For me, it is a reminder to stay focused on the tasks at hand. For you it is a reminder of all the things you need to do to make this the most successful selling season ever.

Are You Working ON Your Business or IN Your Business?

Morgan Freeman’s character “Red” said it in The Shawshank Redemption, “You either get busy living or get busy dying.” Never have more truer words been said about retail.

So what are you busy at right now?

Are you busy coming up with new ways to market your business?

Are you busy evaluating your inventory mix to make sure you have the right items, the right amount of items, the right prices?

Are you busy measuring your financials to make sure you have enough cash flow, are keeping expenses in line, and building profits for the future?

Are you busy training your staff, teaching them how to please your customers and make their experience both memorable and worthy of talking about?

If you want to get ahead, you have to spend just as much time working ON your business as you spend working IN your business. Maybe even more.

Here are some simple things you can do to find more time to work ON instead of IN.

  • Don’t waste your time stapling, folding, cutting or hole-punching. If you don’t have a staff person in need of a simple project, give it to your kids or grand kids. (And if that isn’t an option take it home with you and do it while you catch up on your favorite show).

  • Don’t micromanage. Train your staff how to do it. Then empower them to do it. Even encourage them to come up with their own ways to do it better.

  • Don’t ever say or think “it would be quicker for me to do it myself.” The first time, you’re right. But if you teach someone else how to do it, the first time will be your last time.

  • Hire somebody. Let them do all that day-to-day stuff that bogs you down. Not only does it free up your time, but it forces you to work ON your business just to find the money to pay them.

And if you aren’t sure where to begin working ON your business, think about it as a three-legged stool.

  • The seat of the stool is the products. Without the seat there is no need to prop it up.

  • The first leg, then, is the marketing. What are you doing to get people in to see your products?

  • The second leg is selling. How well trained is your staff? Do they know the benefits of the products?

  • The third leg is the financials. How is your cash flow? Profit? Inventory levels? Expenses?

Pick the wobbliest leg and get to work. (Let me know if I can help).

-Phil

When Bunnies Multiply

Easter is coming.

If you’re a store full of seasonal merchandise there are bunnies sprouting up everywhere you turn. And just like the real critters, they tend to multiply at a rate faster than expected.

When Bunnies Go Wild
And in 17 days you’ll have a dilemma… what to do with all of the Easter Bunnies that didn’t find their way into someone’s heart and home.

Your first thought is usually, “Well, they’re paid for, might as well keep ’em and sell ’em next year. I’m gonna need bunnies next year anyway.” That was always my first thought. Plus, we have a large enough warehouse that no one was going to care about a small box of Easter leftovers.

Get over that thought. There is a better thought to have…

“Yes, I paid for them. I want my money back!”

When the season ends, the smartest thing you can do with your leftover seasonal merchandise is mark it down and try to turn it into cash.

Four Ways to Better Cash Flow
First, it helps put money into your pockets for buying other (more profitable) merchandise. Throwing it in a box until next season just means you have fewer dollars available for merchandise right now when you really need it.

Second, if you have leftovers, part of the reason is that you bought too much, but even more likely, you bought the wrong stuff. If it didn’t sell this season, it isn’t selling next season. Cut your losses and move on.

Third, even though Easter happens every year, the product mix available for the season and your store’s mix both change frequently. Maybe you’ll find an even cuter bunny, or maybe you’ll decide chicks are the way to go, or maybe you’ll decide that you’ll sit out the next season. If you’re holding merchandise from the previous year, you are less capable of making those choices.

And finally, your financial numbers will improve. If you are measuring your Gross Margin Return on Inventory (if you aren’t, you should!) then you know that part of the equation is keeping your inventory levels lean and tight. Holding merchandise that isn’t selling costs you money.

Hare Today Gone Tomorrow
So for the next couple weeks, sell your Easter goods to the best of your ability. Make your margins and move on. But if April 25 arrives and you still have plenty of bunnies, give those hares their marching orders.

-Phil

Would You Attend This Workshop?

The Jackson Retail Success Academy is now signing up retailers for our 2011 class that starts in January. This 8-week program has been a huge help for new retailers to get the foundation they need to be successful.

Some have asked if we could run this academy in their community so I put together a 2-Day Workshop format.

Would you sign up for this workshop if it was offered in your town?

Retail Success Academy 2-Day Format

Day 1:
8:00am Meet & Greet – goal setting, expectations
8:30am Understanding Your Brand – definition of branding, character diamond workshop

9:30am (break)

10:00am Character Diamonds Revealed
10:45am Traditional Advertising – Creating an ad budget, How Ads Work, Advertising ROI, Ads with Impact

12:00pm (lunch)

1:00pm Marketing on a Shoestring Budget – Word of Mouth, Social Media, Cause Marketing, Networking, Public Relations

2:30pm (break)

3:00pm Understanding Your Financials – Balance Sheets, Income Statements, Ratios & other important numbers
4:00pm Cash Flow Sheet

5:00pm (break for evening)

6:00pm Dinner/Drinks someplace fun in your town

Day 2:
8:00am Resources Breakfast – meet the local Chamber, DDA, Buy Local groups
8:45am Inventory Management – GMROI, Pricing for Profit, Turn Ratios, Open-to-Buy, Cash Flow

10:45am (break)

11:00am Customer Service – The Basics, The Best Practices, The Wow! Service

12:00pm (lunch)

1:00pm Hiring & Training – Identifying the Perfect Employee, interview questions that work, developing a training program

2:15pm (break)

2:30pm Staff Meetings/Training Sessions – hands-on workshop to learn how to plan and run successful meetings & training sessions
4:15pm Final Q&A
4:45pm Evaluations

5:00pm Go be successful!!

Tell me whether you think it would be worth two days to you to attend a business-altering event like this and how much you would expect to pay. (You’ll be surprised when I reveal what it would actually cost.)

-Phil

PS All those links take you to free eBooks I’ve already written on those topics. The eBooks are extremely helpful but not nearly as much fun and motivating as the live presentation.

How Will You Measure Success?

It dawned on me that I’ve never asked you the most important question of all.

How will you measure success?

Whenever I work one-on-one with another retailer, that is usually one of the first questions. If I don’t know what measuring stick you’re using to decide if you are successful, I can’t help lead you there.

Will it be profit? Will it be increased sales? Will it be increased customer counts? Will it be larger transactions? Will it be positive cash flow?

Are you preparing your business for future stability, short-term gains, or to sell it to someone else?

All of those are realistic goals, but the path to each is not necessarily the same. Knowing the answer helps you point your ship in the right direction. The only wrong answer is, “I don’t know.”

How will you measure success? Write it down. Post it where you can see it. Put it in your planner, on your calendar, anywhere you look daily. Then start doing what you need to do to get there.

-Phil

Which Would You Attend – Revisited

A few days ago I posted 4 potential classes and asked a bunch of my retailer friends if they could only attend one, which would they choose.

I had two purposes for this post. First, to see how people choose which sessions and trainings to attend. Second, to see if there was one over-riding topic in which everyone was thirsting for more info.

The answer to the first purpose was interesting. There were three basic reasons for choosing which class to attend.

  1. It is the class that you deem most important to your business success (regardless of your own skill level)
  2. It is the class in which you feel your skills are least competent
  3. It is the class that sounds the most fun (of highest interest to you)

Professionally, I would think reasons #1 & #2 make the most sense, but I can also see how #3 plays into the equation. If you aren’t enjoying yourself, you’ll have a harder time staying focused, thus have a harder time learning.

The answer to the second purpose was less clear. All four classes received interest. Including the email responses, there would have been at least two people in each class, but no more than three in any one class. So no clear cut topic emerged. Darn! I was hoping to get some more focus for future posts.

So, in lieu of a single topic, I’ll keep writing a variety of posts on all topics important to retail success. If you have a question, send it along and I’ll respond. Maybe by the 4th quarter you won’t have to attend any classes.

-Phil