Home » Inventory Management » Page 4

Category: Inventory Management

Give Your Business a Physical – Track These Numbers, Too

There are many different metrics you need to measure to determine the health of your business. Two of the biggest are Profits and Cash Flow. If both of those are good, your business is probably doing well.

But that doesn’t mean you don’t look at other numbers, too. That would be the equivalent of a doctor checking your temp and blood pressure and determining you are completely healthy without looking at anything else.

Here are some other numbers you should track to keep a check on the pulse of your business.

Traffic – Number of transactions you had this year compared to last year. Did that number go up or down? If it went down, why? 
  • Did your location get worse? 
  • Was there a change in the types and numbers of stores around you? 
  • Was there a drop in population? 
  • Did you cut back your offerings and categories significantly?
If your traffic was down, but none of these other factors were negative, you have a hole in your Customer Service (repeat and referral business) and/or Advertising (first-timer business). You need to find that leak and fix it fast.

Average Transaction – Take your total sales and divide by # of transactions. Compare to last year. If this number went down, why? 
  • Did you carry fewer high-ticket items? 
  • Did you add more low-ticket impulse items that people might run in and grab? 
  • Did you do anything to attract more youth? 
If none of those factors were in play but your average ticket went down, you have a hole in your staff’s ability to sell. You need to fix that fast.

Market Share – This is a little harder to calculate, but an incredibly valuable piece of information that can pinpoint problems – even if you had a great year on paper!
  1. Find the national sales figure for your industry. 
  2. Divide that by the population of the United States to determine sales per person. 
  3. Multiply that times the population of your trade area to determine the market potential for your area.
  4. Divide your total sales by that market potential to find your percentage or share of the market.
  5. Compare it to last year’s number.
You can have an awesome year with solid sales growth and decent profits and cash flow, but still be in potential trouble if your market share is slipping. If all your growth was fueled by huge growth in your market, but you aren’t holding onto your share of that market, then you are ripe for being picked off by a better competitor entering your market. You need to figure out why your share is decreasing and fix that problem now.

You can also have a lousy year with declining sales and profits, but mostly fueled by a change in the market. Maybe your industry is in decline (smaller sales per person). Maybe your trade area is shrinking. But if your market share is growing, then your big issue is determining whether to cut expenses and inventory and hope the market comes back or move to a new market.

Make sure your Profit and Cash Flow are good. Those are immediate life threatening problems for your business. If those are good, it buys you time to check/fix the other problems.

Give your business a full physical. An ounce of prevention is worth a pound of cure.

-Phil Wrzesinski
PS Be honest in your evaluations. Even if there are circumstances beyond your control, there are always circumstances you can control and improve while you ride out the storm.

When to Stop Buying

Christmas is just over two weeks away. Your inventory is running down. You know about the holes on the shelves that you have secretly covered up by spreading things out. You know what you’re out of stock and won’t be able to get back in before Christmas. You’re worried you won’t have enough inventory to make the sales you need that final week of the season. You grab your line lists to see who will ship the fastest and what deal they are offering this week. You crunch the numbers and start writing the orders. You get into a frenzy, one order after the other, loading up on anything that will ship right away so that shelves don’t look bare. You start to sweat. Panic grips you. One more order…

Stop!

Step away from the computer!

Don’t send those faxes or emails!

Take a deep breath and relax. I know that scenario above. Lived through it a few times. A lot of retailers make this same mistake this time every year. We panic. Did we buy enough? We think no and start writing orders for a lot of things that probably aren’t going to sell and we get stuck with a bunch of inventory in January and not a lot of cash.

Before you place one more order this week, ask yourself these three questions:

  1. Will this product sell in January? Chances are really good that most of what you order this week will end up being shelf-fillers – products that make your store look full, but don’t completely sell through. Even the hot items rarely sell out that last order. But if it is truly hot, it will sell next month. If you know the product will sell after the holidays, proceed. If it is only a holiday-time item, count your blessings that you didn’t have any carry-over and move on.
  2. Will this purchase put me over my budget? You do have a budget, right? You do have a projected sales number in mind along with an ending inventory number you hope to hit? You do know how much is currently on order and how much you still need to buy? Without a plan, over-buying is almost imperative. Plan your purchases around your Ending Inventory plus Expected Sales minus your Current Inventory. 
  3. Do I (will I) have the cash to afford this order? If you have been paying attention to your cash flow and, then you know whether you can afford this order. If the cash flow says you can afford it and the other questions are also answered yes, then go for it. But even if your budget says you need to buy more, but the cash flow does not, go with the cash flow. Better to have cash in January than inventory. 

If any of those questions are even a shaky yes, talk yourself down off the ledge, push the pencil away, and go out on the floor and sell something.

-Phil Wrzesinski
www.PhilsForum.com

PS Our customers are the ones to be induced into over-buying, not you. 😉

Emotional Responses

“The mind uses logic to justify what the heart has already decided.” -Roy H. Williams

The best way to get into the customer’s mind is through her heart. Tell stories. Share values. Speak to the emotions.

On the flip side, however, the best way to hold yourself back is to make business decisions based purely on emotions.

As independent retailers, we’ve all faced this dilemma. The product that a new manufacturer promised us would never be in the mass market was just spotted on the shelf at your local Target store. You’re mad. You just placed a $1000 order and now the product line is no longer “special”. Or you happened to get an email from a flash sale site showing one of your favorite products on sale for what you paid for it.

Your first instinct is to flame the manufacturer on the discussion boards, cancel orders, deep-discount your on-hand inventory and vow to never carry that line again.

Stop. Wait. Take a deep breath. You’re making an emotional response.

Before you make any decisions, do a little fact-checking. Are you still selling the product at the retail and turn-ratio that works for your store? Are your customers coming into your store expecting you to have this product? Do you believe in this product? Does this product fit into your image as a store?

If the answers to those questions are no, figure out a game plan to get rid of your excess inventory in a smart way. Find a replacement product that says yes. And move on.

Surprisingly, sometimes the answers will still be yes and you’ve just dumped a viable line and burned bridges on the way out.

There will always be manufacturers who do things you won’t like. There will always be situations that frustrate you. The smart businesses, however, skip the emotional responses and make business decisions.

-Phil Wrzesinski
www.PhilsForum.com

PS Remember that at the end of the day, you are beholden to two things – your customers and your bottom line. Make sure all of your decisions on both accounts are smart business decisions, not emotional reactions.  Don’t think that other manufacturers aren’t watching how you react to these situations. They know who the hotheads are.

Retail Math is Not So Scary

No one signed up for my June Business Boot Camp on Retail Math. (Well, okay, a couple people did, but not enough for the Chamber to make it a go.)

I think I know why.

Retail Math is scary. So many numbers and ratios and calculations. So much confusion over terminology. Is a credit a good thing, or is that a debit? (I still get those confused all the time.) Accountants and bankers don’t seem to help. They use words like equity and depreciation and accrued this or that.

We don’t like feeling dumb, so we don’t like going to classes and workshops and seminars where we know next to nothing. Yet that is exactly the kind of classes and workshops and seminars we need to be attending. Especially Retail Math.

If you want to be successful and pay yourself what you’re worth, you have to know the math.

Fortunately for you, I have struggled with this myself. So I attended the workshops and seminars, talked to the accountants, spent the time wrapping my head around all those 50-cent words and million dollar concepts, trying to find a way to put them into terms you and I and all the other indie retailers might understand.

I wrote them down in two simple, powerful Freebies

Both contain math. It is math you can do.
Both contain terminology. Explained in a way that will make sense to you.
Both contain ideas and thoughts on how you can use the math.

Retail Math is not so scary once you learn it.

Maybe I cannot lead you to a seminar or workshop, but I can lead you to this water. All you have to do is drink.

-Phil Wrzesinski
www.PhilsForum.com

PS For my toy store friends, I took the Financial Statements eBook a step farther. ASTRA contracted with me to write a definitive book on the Financials of an independent toy store called Financials You Can Understand (they wanted to call it Financials Made Easy, but even I knew that was stretching it a bit). The book is a combination of all the math in the two Freebies above along with an explanation of what a typical toy store’s numbers would be and what to do if your numbers don’t match. It isn’t free, but the information is so valuable that you will quickly recover the costs of the book many times over – even if you aren’t a toy retailer. My research has found that the numbers of a typical toy store are quite similar to any retail business that does most of its sales in the fourth quarter.

PPS Full disclosure: I do not get anything from the sales of that book. They already paid me to write it. You, however, will get plenty from it. The only thing scary is how much better you will understand the numbers in your business.

Bye-Bye Buying (A Grandfather’s Wisdom)

In 1951 my grandfather and founder of Toy House, Phil Conley, wrote his “Twenty-Two Important Retail Fundamentals”. I just uncovered them going through some old files.

Wow!

It was amazing how many of them are still true today. Take, for example, number 18 which is appropriate as many of us start buying for the fourth quarter…

18. That weak departments dissipate their merchandising strength…

  1. By buying from too many manufacturers
  2. By buying from too many price lines
  3. By buying too many colors
  4. By buying too many sizes
  5. By buying too many materials
  6. By buying too many styles

All this adds up to bye-bye-volume and profit.

Powerful stuff. Stay true to who you are. Limit your customer’s choices. Give them the best options. Remove the clutter. Don’t over-buy.

In today’s retail climate we feel compelled to offer more and more because the Internet offers more. Yet, we will never be able to match the offerings of the Internet. Instead, the more we should be offering is more thoughtful choices, more carefully chosen products, more practical solutions, more intelligent offerings. We need to help our customers cut through the clutter by knowing everything that is out there and why we chose to sell these particular items.

There are already too many options causing analysis paralysis in our customers. Remove the options that don’t make sense and don’t fit your customer’s needs and your inventory will sparkle and shine just a little better than before. The only bye-bye’s will be when you help a customer carry her purchases to the car, usually followed by a Thank You!

-Phil Wrzesinski
www.PhilsForum.com

PS Choices are good. Don’t get me wrong. Having options for different needs is also good. But the biggest way to eat up a chunk of your cash is to buy too many choices and too many options. Keep it down to a Good, Better, Best (or better yet a Best, Bester, Bestest) selection and your cash flow and profits will improve.

PPS Yeah, I’ll talk about a few others down the road. There are some really good nuggets in there, like this one…  7. That good basic stocks plus strong reorder numbers, plus realistic timing, plus selling – not order-taking – will increase volume and profit anytime.

Is it a Win-Win?

Do you ever look for the Win-Win scenario?

You win, the customer wins?

They got their problems solved and the product they needed at a fair price, you got the sale and the smile and the long-term relationship.

You win, the vendor wins?

You got the product you needed at a margin you can afford, they got the sale, the smile and the long-term relationship.

Wait? You didn’t promise your vendor anything other than this order. If it doesn’t sell or someone else comes at you with a better offer, you’re moving on. Right? And they better give you a decent show special, and good terms, and an extra discount, and channel protection, and exclusivity, and price protection, and free training, and a free display, and samples, and literature, and point-of-purchase signs, and seasonal promotions, and guaranteed sales, and immediate shipping, and drop-shipping, and touch-up paint, and brochures, and advertising co-op, and markdown money, and web support, and…

Hmmm…

I admit. I am guilty of it. I want all of that from my vendors. I want the whole nine yards, the whole kit and kaboodle, the whole enchilada.  Yet when my own customers come at me with those kinds of demands, I never feel like the winner. Yeah, I got the sale, but I sold my soul to get it.

Don’t put your vendors into that same position. Treat them like partners. Find the win-win for you and your vendor. Understand that they have expenses, too. Amazingly high expenses. They have to invest a lot of money into research and develop of new products before they know if the product has a chance at selling. They have to buy up front without terms.

The smart vendors often have built all those goodies you demand into their profit margins, just like the smart retailers have done with their extras. But if it is going to be a good long-term relationship, the vendors need you to give a little, too. Go back to the list of demands. Which do you need? Which can you live without? Which are deal killers? Which are merely nuisances? Which ones move the needle?

When you enter a relationship with a vendor (and all purchases should be looked at as relationship-building), make sure you are clear up front of what you want and what you can live without. Make as many concessions as you make demands. Make sure you and the vendor are on the same page. You scratch my back, I’ll scratch yours. Make it about the long-term relationship.

There is always a win-win scenario. That’s where you’ll find the profit.

-Phil Wrzesinski
www.PhilsForum.com

PS Sure, when you’re small and just starting out there will be vendors who don’t care enough about you to look at it that way. Some of that is because they have been burnt by too many retailers who don’t look for the win-win. That’s okay. You’re not them. Do it the right way and if nothing else, you’ll sleep better at night. More likely, however, is that when you treat your vendor – no matter how big or small – as a partner, they will often come through for you when you need them most.

How Much Are You Investing in Your Business?

The Jackson County Chamber and I are teaming up to offer the best segments from the Jackson Retail Success Academy for all Jackson area businesses (and anyone willing to make the drive).

Three classes. Three four-hour days. $250 investment in your business (or $99 per class if you cannot make all three or are not a retailer.)

Inventory Management and Financial Health for Retailers
Thursday, June 27 (9am to 1pm) 

Every retailer knows that Cash is King. But do you know how to get more cash in your business to grow your kingdom?

This Business Boot Camp is designed strictly to help retailers understand how to manage inventory and expenses and, most importantly, your cash. You will learn simple formulas that the smart retailers use to keep the checkbook fat and happy. You will learn the Do’s and Don’t’s for keeping your inventory fresh and moving. You will find out where your cash is hiding and how to get more of it.

We will discuss things like Open-To-Buy programs, financial statements, the proper numbers to measure, how to price your products for profit, and the simplest way to get the most out of the inventory you sell.

Yes, there will be math. The important math. The kind of math you have to do if you want to be successful. What will surprise you is how quickly and easily you will learn the math and see the results.

(Note: to get the most out of this Business Boot Camp bring your previous fiscal year’s Balance Sheet and Profit & Loss statement. You will not be asked to share, but it will help you do your own math.)

Shareworthy Customer Service for Small Businesses
Thursday, July 11 (9am to 1pm)

We all know Word-of-Mouth is the best form of advertising. But do you know how to get people to talk about your company?

This Business Boot Camp will teach you the fundamentals behind generating Word-of-Mouth from your customer base. You will learn how to exceed customer expectations in such a way that they have to tell someone else. You will learn how to create a culture in your business that wants to delight your customers at every turn and raise the bar of Customer Service so high that you turn clients into evangelists.

Whether you are a retailer, a service provider, or any type of business, you will walk away with four ways to generate word-of-mouth, a new approach to hiring and training, at least one planned staff training, and a better understanding of what it takes to offer Customer Service that makes people want to talk.

Word-of-Mouth is still the most powerful form of advertising. This Business Boot Camp will be one you will be talking about for a long time.

Branding and Advertising: Reaching New Customers in Today’s Market
Thursday, August 8 (9am to 1pm)

The advertising that got you results yesterday isn’t working today. Today’s market just can’t be reached. Or can it?

This Business Boot Camp will teach you the fundamentals of marketing that work in any day and age and how to apply those to this day and age. You will learn what moves the needle in advertising and how to craft a message that gets your potential clients to take action. You will learn the biggest myths of advertising and how even the largest companies throw good money away every single day. You will learn how to get the most out of your advertising budget (even if it close to zero).

Advertising cannot fix your business, but if you have a good business model, you will learn techniques that will grow your business the right way and keep it growing for years, no matter what kind of business you run.

Contact the Jackson County Chamber of Commerce to sign up. It will be the best twelve hours you spend on your business this summer!

Phil Wrzesinski
www.PhilsForum.com

PS If you are struggling in any one of these areas, you should sign up for that one class Ninety-nine dollars for four hours of top-level, hands-on instruction is the kind of no-brainer investment you know you should make for your business.

PPS If you don’t think you need any of these classes then you should definitely sign up for all three. Last night as I did a presentation for the Quincy Chamber of Commerce, one of the organizers lamented that it was only the businesses who were already doing well that showed up. I reminded her that was why they were doing well. They kept showing up.

The Four Questions a Buyer Should Ask

One of my vendors did a survey of retailers to get ideas how they could service us better. I told them that there were really only four questions my buyers ask about a vendor before placing an order.

  • Do I like the product enough to want to sell it?
  • Would my customer buy this product?
  • Will selling this product benefit my company?
  • Do I have the room for this product?

Answer yes to all and we place the order. So a smart vendor would look at those four issues and find ways to make me answer yes.

Do I Like the Product?
Yes, it starts with the product. You better make something good, something smart, something simple that fills a felt need of the customer. If I don’t like it, I can’t sell it. Period.

Would My Customer Buy This Product?
I can love a product, but know deep down in my heart that my customers won’t. In fact, a good buyer knows the difference between what she loves and what customers will love, too. I have turned down some fabulous products because I knew they wouldn’t make sense for my customer base. A smart company understands this and markets their products to the right stores. A really smart company asks why and then decides whether it is worth it to modify their offerings or simply stick to their niche.

Will Selling This Product Benefit My Company?
This is where a number of factors come together.

The first is money. I need to make money. I have major bills to pay including rent, payroll, insurance, utilities and taxes. Are the margins and dollars good enough to help me pay my bills? Will the inventory turn fast enough to make it worth my while? Are the terms such as dating, freight and quantities realistic for my cashflow needs? Is the product one that all my competition is selling at unrealistic prices?

The second is image. Will selling this product enhance the brand or image of my store? Sometimes I am willing to take a financial hit on a line if it has other benefits. For instance, we are an official licensed dealer for Boy Scout and Girl Scout merchandise. Prices are controlled by the scout groups. Margins are paper thin. But the traffic it brings me and the prestige it brings me are worth it. Some products “legitimize” your store, which makes up for the financial shortfalls. Some products enhance the look or prestige or reputation of your store.

Companies that can sell me on the benefits of carrying their product from both a financial and an image basis have a better chance of getting the order.

Do I Have the Room for This Product?
When I speak of “room” I am talking display and storage. I am also talking room in the open-to-buy budget. I am talking room in the cashflow of the store. Companies that help cashflow with extended dating or low minimums will get a stronger look. Companies that have easy-to-display-and-store products will get a stronger look.

If you come to me with your product, you better be able to sell me on all four issues. It only takes one NO on any of those questions for me to walk away.

That’s the advice I gave one vendor who asked. I hope they listen.

-Phil Wrzesinski
www.PhilsForum.com

PS Yes, you may forward this to your vendors. Better yet, you might want to forward this to your buyers, too.

The Last Buy

The season is almost over and you’re out of a lot of things. Do you make that Last Buy?

This is a question that haunts all retailers.

If you don’t make the buy, you run the risk of not having what the customer wants which means you lose the sales and you lose their trust. If you do make the buy, you run the risk of having it show up too late and being  stuck with inventory you cannot sell.

Dilemma…

Here is how to think about it…

Ask yourself why you are out of stock. Did you not buy enough to begin with or did you have an extremely good, better-than-expected run on that product?

If your answer is the latter, you may just want to smile and say thank you to the retail gods for giving you a winner and go home and count your money. Forget all about that Last Buy (it’s like trying to double your money at the casino on the last bet of the night – a sucker bet at best).

If your answer is the former, you might want to consider why you didn’t buy enough. Was it cash flow concerns or was it just projecting too conservatively? If it was cash flow concerns, think twice before you make the Last Buy. It is a fast road back into cash flow hell.

About the only time you should make the Last Buy is when it is a product you can sell after the season is over and you have the cash to do it.

The best thing to do is to eliminate the temptation in the first place. Overbuy the must-haves. Always project higher on the items people come in asking for by name. Have extras on hand of those items and you won’t have to make a Last Buy on them. Everything else? Let it go. When you run out for the season, you run out.

The key is identifying the must-haves. If you are out of things people don’t come in asking for, no one will notice. If you are out of things people buy from you all the time, they will notice and they will quit coming to buy them from you.

Don’t run out of those items.

-Phil Wrzesinski
www.PhilsForum.com

PS You know what the must-haves are. The stuff you order every single time without having to look at a report. The stuff your customers ask for the moment they walk through the door. The stuff that sells 3x faster than the average item.

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.