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Make Your Dogs Bark!

If you’re in retail, you’ve done what I’ve done – bought stuff that didn’t sell. Oh, it looked good in the catalog or at the trade show. The sales rep gave you tons of info on it. You put it in a great location, even trained your staff on all its finest features.

But at the end of the day, the customers weren’t buying.

So what do you do with those dogs? Make ’em bark and move ’em out!

This Thursday we’ll have over five times the usual customers at our Summer Fun Sale. It’s our once-a-year clearance sale (or as my friend calls it, the make-it-go-away sale).

For the past two months we have been searching the store for the dogs, the merchandise that just won’t hunt, and red-tagging it at half-off the regular price. We’ve been storing these goods in a corner of the warehouse waiting for the third Thursday in July.

On Wednesday we’ll close a couple hours early and set up tables & shelves right in the center of the store. And on Thursday the fun begins. Our first customers will arrive about an hour before we open. They’ll sit by the front door in lawn chairs and peer through the window with binoculars to search out the deals they want to scoop up first. About fifteen minutes before the doors open our parking lot will be full.

And three hours later, I’ll be making my first trip to the bank!

Some people ask me why I do it this way. They ask questions like…

Why do you always mark it half-off and not 25% or some lesser margin?

I mark it half-off to create both excitement and urgency. Anything less and customers might not bite. Remember, these are items no one wanted. Your customers already voted a thumbs down on them. You need to go big if you want to get their attention.

Why wait until one certain day? Why not just mark it down and have a clearance area?

I don’t want to train my customers to expect a markdown. A clearance area that is always full of new merchandise just tells customers to wait until the item they like ends up there. The thinking goes… something is always on sale, so why pay full price? Plus, the excitement factor goes way down. Think about it this way… Would you rather have your parking lot full and people lined up at the door fifteen minutes before you open, or the same few regular customers wandering through the clearance section on occasion?

Why mark it down at all? You’ve already paid for it and now you’re just losing profit.

If you read my earlier post on Gross Margin Return on Investment, you’ll remember that GMROI is calculated by dividing your Gross Profit by your Average Inventory at Cost. Selling a whole bunch of inventory at half-off does not increase my gross profit, but it does wonders for lowering my average inventory. Plus, the cash I get gives me the opportunity to go buy something else that will make me a profit.

Here’s another way to look at it. If I buy a crib for $350 and put it on my floor, but don’t sell a single piece for a whole year, that space on my floor has cost me $350. But if I sell that crib for $250 after 6 months, I now am only down $100 for that space and have 6 more months to put something else there that might make me money.

The bottom line is this…

Don’t be married to your merchandise. If you have dogs that have gotten fat and lazy, you need to make ’em bark and move ’em out. Turn them into cash and move on. That includes seasonal merchandise that didn’t sell during the season, too. For us that means the Summer Fun Sale – a necessary part of my inventory management plan.

-Phil

Help Me Choose A Workshop

At many conferences we have breakout sessions – three or four different topics and speakers from which you can choose.

I struggle with these because I usually want to attend more than one, and cloning has not reached the level to allow me that luxury. And trying to decide between one session and another is tough.

I need your feedback here…

I’m going to give you four options for sessions you could attend. For the sake of argument, let’s assume all the speakers are well-qualified to talk on their respective subjects and you can only attend one of those sessions.

Which session will you attend and why?

Session #1 – Marketing & Advertising on a Shoestring Budget
Learn the smartest ways to get the most out of your limited advertising resources. This class will show you how to use Social Media the right way, teach you new ways to market your business without spending a dime, how to get a guaranteed return on the money you do spend on advertising, and why you’re not getting the word-of-mouth you think you deserve (and how to change that). Every attendee will leave with at least four inexpensive ways to increase traffic and sales that they can implement right away.

Session #2 – Everyone has Customer Service, You Need Customer Delight
This session will show you how to train your staff to consistently give your customers far more than they expect. Topics covered include how to meet and greet your customers the right way, understanding the different customer temperaments, how to solve their problems, and how to finish each sale leaving the customer happier than when they came in. Each attendee will get a blueprint for training their staff including role-play examples and key phrases to avoid.

Session #3 – Knowing the Numbers, It’s Your Money After All
You can just hand over your financials to your accountant and hope for the best, or you can learn the numbers yourself and make them work for you. This class is for the financials novices who wish to learn simple ways to understand the financials behind their business. You will learn how to calculate important numbers like Cost of Goods Sold, Gross & Net Profit, and the many different ratios that banks use to determine if your business is growing or dying. When you finish this class, you’ll know exactly where your money is, what it is (or isn’t) doing for you and how to make it better.

Session #4 – Cash Flow Basics – How Smart Buyers Make More Money
When is a deal from your vendor too good to pass up? When is a discount not worth the loss of cash flow? How do you know when you have too much inventory? Too little? These and other questions will be answered in this buyer’s workshop including tools you can use to increase your cash flow and make you more money. You don’t need a point-of-sale system to be a better buyer. You just need to know these simple principles of buying that dramatically change your financial picture.

Which will you choose and why?

-Phil

New eBook on Inventory Management

Cash is King.

And in retail, your cash is primarily tied up in your inventory.

But what would happen if you earned an extra 20 cents for every dollar you have in inventory? Multiply your average inventory times 0.2. What do you get? Extra money to play with. Extra money to pay yourself, to invest in your business, to spend attracting new customers.

Is that number worth 30 minutes of your time?

That’s how long it will take for you to read my new free eBook – Inventory Management: Cash is King.

And in those 1800 seconds you’ll learn simple easy ways to unlock the money tied up in your inventory.

What are you waiting for?

-Phil

Give ‘Em What They Want

Next week I’m sending out a coupon. $20 off a $100 Purchase. I need to generate some cash flow and get some traffic through the door.

For the past two months we’ve been shut off from the community on two sides by federally funded construction projects (Mr. Obama, I’m not feeling very stimulated). So I’m sending out a coupon – givin’ it away – to generate some sales.

As I’ve said before, sometimes you gotta choose between profits and cash flow. This time I’m choosing cash flow.

The toughest part for my staff (besides ringing up the coupons properly:-) is dealing with the customers who want to skirt the system.

Even though the purpose of the coupon is to stimulate some new business, I’ll have a handful of customers who want to use it on a previous sale they did in the last few weeks.

Some customers will try to use it on sales less than $100 (It’s $95, isn’t that close enough?).

Others might buy $100 worth of stuff and bring $50 back the following week.

So how did I instruct my staff to handle these situations? Simple…

Smile and say, “Okay!” Yep, give it to ’em. Don’t hassle them, don’t belittle them, don’t upset them. Just do it and move on.

You see, the customers who do that are so few and far between – maybe 3% of the totally coupons used – that they aren’t worth the complaints they could generate. And they aren’t worth your energy. At worst, they aren’t profitable customers at all so don’t waste your time. Just give ’em what they want and move on. At best, they might return the kindness you show them later.

It’s not about “playing fair”, it’s about taking care of your customers – all of your customers.

As my good friend and fabulous writer, Becky Blanton said,

“When there are no score cards you’re not tied to a specific game. You’re free then to succeed”

Don’t get sucked into those kinds of games with customers, don’t get caught up in what is fair or not fair. And most certainly don’t keep score.

That’s how you win at customer service.

-Phil

Profits versus Cash Flow – Which Will You Choose?

Sometimes in retail you are faced with a difficult choice. In a tough economy, one of those choices is Profit vs. Cash Flow.

Sometimes you have to give away your profit to get more dollars streaming through the till. Sometimes you have to give up chasing dollars just to protect your profit margins.

The question is when do you choose Profit or when do you choose Cash Flow?

The answer is when you know exactly where your business stands, where you want to go, and what you need to do to get there.

For instance…

My goal for this past year was to show a profit. The bank gets a little nervous when you don’t show a profit, and to guarantee a renewal of my line of credit in these tough lending times, I knew that showing a profit would give the bank confidence in my stability and ability to succeed.

Last November I made a conscious choice to go after profit instead of cash flow. I chose not to run a direct mail coupon incentive that I had used in previous years. The trade-off was dramatic. Sales were down for November because I gave no incentive to shop early. Profit margin was way up, though, because I didn’t give away the house.

But as I looked at the lost sales in November, the question begged… Did I lose those customers for November or lose them for good? The answer came quickly in that first week of December… I only lost them for November. At the end of the two months my sales were where I expected going into the season, down only slightly. But my profit was up for the same period compared to last year. Had I run the coupon, I would have increased sales (cash flow) but decreased profit.

Because I knew my goals and knew what I needed to do to achieve them, I was able to be successful. Because I knew how my choices would affect my cash flow and profit, I was able to choose the right approach.

So what is the right approach in your business? It depends on your short and long term goals. Do you need to improve cash flow to fund a new project? Or do you need to show a strong financial statement to your investors? Do you need to improve cash flow to pay off your vendors or do you need to grow your profit to pay off yourself?

When times are good, you can do both at the same time. But when times are tight, you sometimes have to choose. Choose wisely, my friends, by knowing your goals and the means by which you will achieve them.

-Phil

PS The choice was made easier because our cash flow had been strong up to that point. What I lost in cash flow was allowable because I had built up cash flow from the previous year (at the expense of profit) Sometimes it is a seesaw between the two.

Inventory Controls That Work

Open-to-Buy is great for businesses with vendors who ship quickly and can pinpoint delivery with consistent terms. It works great for businesses whose monthly/weekly/daily sales are predictable. It is a super system for companies who can give the system full-time attention.

In other words, for the Independent Retailer, Open-to-Buy sucks!

I’ve looked at a half-dozen OTB methods, none that I could ever get to apply to my business. Too many vendors with different terms, different minimums, different seasonal needs, different availabilities. If I tried to run LEGO on an OTB, we’d be OOB (out of business). I sell it all in December, but if I don’t order it to arrive in August, LEGO will be sold out and I’ll get nothing.

Instead of an OTB, we followed these three simple principles this past year that gave us the results we wanted.

Don’t be out-of-stock of the Must-Haves. We define Must-Haves as any product that we sell more than 36 pieces a year. You probably already know intuitively what products you sell on a regular basis that you always have to have in stock. Make sure you have enough of those items at all times. (Note: You can define your must-haves by whatever criteria you want. Just make sure you always have them.) This way, although the rest of your stock might be low, the customer always thinks your stock position is strong. The fewer times you have to say, “No, I’m sorry, we’re out-of-stock,” the better.

Don’t out-buy your Dating Terms. If the vendor gives you 30 days to pay the invoice, don’t buy more than a 60-day supply (assuming keystone or higher mark-up). Sure, sometimes this doesn’t work (see the LEGO example above). Sometimes the minimum order is more than a 60-day supply. Fill your shelves with that first order, but don’t re-order until you can order within the terms. And whenever possible try to get longer terms from your vendor.

Two ways to extend your terms:

  • Ask your vendor – especially if you are ordering new stuff. If you have a strong credit rating or excellent payment history ask for an extra 30 days. Remind them that it will help you to buy/try more. Then be absolutely sure to pay that bill on time.
  • Pay with a Credit Card the day the invoice is due. This give you an extra 20-30 days depending on your credit card agreement. (Make sure you pay that bill on time, too – fees and interest will kill any deals/savings you get.)

Minimum orders are Okay – Don’t buy what you Don’t Want. You don’t always have to increase your order just to get whatever special is available. Discounts, Free Freight and Extended Dating are nice, but not always necessary. Sometimes you find yourself buying stuff you don’t want or need just to qualify for the discount. After paying interest on the money you borrowed to pay the invoice, plus taking a markdown on the products you didn’t want and couldn’t sell, you’ll find that the special wasn’t so special after all.

The best specials your vendors can offer you are:

  • Extended Dating – Net 60 or Net 90 do more for your cash flow than anything else. Always select this option first if given the choice.
  • Free Freight – Depending on where they ship from, this can be as much as a 15% discount – great for the bottom line profit.
  • Deep Discounting – 5% is no incentive. 10% isn’t much either. To be considered Deep you need a 15% or better discount. Don’t ever over-buy your dating terms for less than 15% off (the equivalent of Free Freight). Even then, only buy what you know you will sell.

Dating does the most for your Cash Flow. Discounts & Free Freight really only help the Profit/Loss. Go after the special that meets your needs.

There will always be times when you have to over-buy. But choose them carefully. Do it for your Must-Haves. Do it when the dating terms are favorable. But if you ever find yourself thinking, “I’m not sure I really want to buy that,” then don’t!

We decreased our average inventory by over 10% this past year (while only losing 4% in top line sales). This caused us to have a higher Gross Margin Return on Investment (we made more money on the money we spent) and better Cash Flow. Follow those three principles and you’ll see an improvement in your business, too!

-Phil