Entries posted under "Retail Merchandising & Buying"
The Last Buy
Posted on Nov 30, 2009 by Ted HurlbutIt’s Cyber Monday, we’re now beyond Black Friday, and most independent retailers are beginning to get a sense of whether their sales plans for December (and thus, for the holiday selling season) are going to come in or not. While few have been expecting any significant upside surprises, many were hoping that the reality would exceed their very modest expectations.
Aggressive by nature, many independent retailers are reviewing their weekend business, looking for items and categories that out-performed and other opportunities that might pop their business in the next few weeks. Even with a flat sales plans for December, they’re not willing to passively concede that a 5% or 10% increase can’t be wangled. With one last buy of the right things, they reason, that 5% or 10% might be there for the taking.
That last buy, in fact, is usually the least profitable buy of the year. The problem is not generally in what’s bought, the problem is in the quantities bought. Invariably, the last buy has not been planned for, it’s placed on the spur of the moment, and represents an aggressive merchant’s unwillingness to stand pat with the assortments and quantities already on hand. What starts out as a highly surgical buy of several key items almost always turns into an additional layer of merchandise across several key categories.
The key metric to consider is the final sell-thru’s on those quantities that were brought in with the last buy, before the first round of clearance markdowns is taken. Invariably, a large percentage of the last buy ends up on clearance racks, bringing the overall profitability of the last sale down significantly, and lowering the profitability on the balance of clearance inventory as discounts need to be ramped up across the board to push through greater-than-planned-for ending inventory.
In my experience, the last buy rarely impacts sales, one way or another. The one exception is when a single item is driving business, and would sell out without the last buy. Absent that, all that the last buy does is add to ending inventory. In situations where sales break out and exceed plan, the bump usually can be directly attributed to a jump in traffic, with most departments and categories participating. In that case, a simple analysis almost always shows that without the last buy that ending inventories would end lower than planned (with less to clear out!) rather than with significant out-of-stocks.
In the current environment, the last buy is even harder to justify. Few retailers are working off of a positive sales trend, which shifts the risk/reward equation even further in the wrong direction. Independent retailers should avoid the last buy, except in those rare cases where a single item is driving business and is in danger of selling out. Rather than focusing solely on December sales, independent retailers should also be looking at December and January together, and considering how to maximize profitability across both of these crucial months.
Add Comment (1)Units vs. Average Selling Price
Posted on Oct 30, 2009 by Ted HurlbutAs we look to the last two months of the year, independent retailers are struggling with exactly what to expect. Most remain optimistic (they are optimistic by nature), but cautious. One of the critical questions in their mind right now is how much they are going to have to drop their prices to get the customer to respond.
Inventories are down, in large part to guard against end-of-season markdowns, but also in an attempt to put a floor beneath retail prices. Nobody knows for sure, however, whether customers will respond to lower stock levels by buying now at current prices, or holding out for lower prices later.
This makes it challenging to set sales plans, but the real issue is the balance between unit sales and average selling prices. Most independent retailers are planning for a flat season at best, but there are many different ways to get to flat.
If you believe that your lower stock levels will hold the line on discounting, then you are probably planning your average selling price to be up over last year, with your units down, reflecting your lighter stock levels. If units break plan, you’ll chase.
If, on the other hand, you doubt that you’ll be able to hold price, your plan likely calls for average selling prices in line with last year, with units flat as well. You probably have already planned your discounts, with promotion dates.
This is not an insignificant distinction, because at this point in the season the issue isn’t just how much money is left in the open-to-buy, it’s also how many additional units you want/need to commit to. How you’re planning these last two months is critical. Don’t overlook the balance between your planned units and planned average selling price.
Managing Retail Price-Point and Margin Pressures
Posted on Aug 26, 2009 by Ted HurlbutThe greatest challenge independent retailers are struggling with right now, even more than depressed traffic counts, is getting full margins for their goods. This struggle continues with fresh arrivals of fall goods, and shows no sign of abating. Customers remain extremely value conscious, and to them, that means “On Sale”.
It’s important to recognize that what’s at work here is good-old-fashioned supply and demand economics. Consumers are strained. They are not willing to pay what they formally did for things. They require a lower price, and that softness in demand is forcing prices down, and hitting margins.
Like it or not, retailers of every stripe are subject to these economics. As much as I’ve written about protecting yourself from price-point resistance by building brand equity through unique products, engaged and knowledgeable salespeople and memorable customer experiences, brand equity can’t be built overnight. It takes time.
Independent retailers need to respond to these price-point and margin pressures now. While the consumer may be demanding discounts, the real issue is not the retail selling price, it's margins. And the immediate response has to be on the cost side. Retailers can’t continue to short themselves on margin. Whether your preferred strategy is to establish lower everyday price points (which is what I would recommend), or to build in margin to cover your discounting, there are two approaches, both of which should be pursued; (1) shift the mix of goods you buy into lower price points, with lower costs, and (2) insist on lower unit costs from your vendors.
Let’s take each in turn. Moderating retail price points by shifting the mix toward goods with lower costs can only do so much. You still have high priced inventory. If you take an everyday price-point strategy, it increases the spread between the higher price points and the average price point, which further pressures the higher price points. On the other hand, if you build in margin on the lower priced goods to cover discounting, you narrow the spread between the higher price points and the average price point, making your full retails look overpriced. Nevertheless, shifting the mix of goods toward more moderate price points needs to be part of your response.
The ultimate solution is to insist on lower unit costs from your vendors, on every item you buy, across every price-point. Just as customers are driving down retail prices, you must insist on lower unit costs from your vendors. Deflationary pressure on retail prices requires that the unit costs that you pay come down, and that costs at every stage of the supply chain come down as well. In many cases, your vendors have already demanded and obtained pricing concessions from their suppliers. You must insist that they pass it on to you. They’ll comply, if they can. It’s not in their interest to weaken their customers (you!) if they can help it. They need you right now just as much as you need them, if not more.
Independent retailers must recognize that they are ultimately part of the supply chain themselves. The end of the chain is your customers. If they are forcing selling prices down, you can’t bear the brunt of that all by yourself.
Turning Retail Zombie Space into Compelling Merchandising
Posted on Jul 29, 2009 by Ted HurlbutFor major national retailers, the downturn has resulted in some categories and departments experiencing dramatic declines in sales, declines that have forced these retailers to rationalize SKU counts and reduce inventories. The dramatic declines in sales have led directly to dramatic declines in inventory density, and the creation of zombie space throughout the store. This has created merchandising challenges for these retailers, but the challenge is most noticeable in apparel departments and other highly discretionary categories.
For independent retailers, who typically focus on a narrowly defined niche that is often highly discretionary, the challenge of dealing with space created by reduced inventories and inventory densities can be particularly acute. Almost every independent retailer has found themselves trying to balance the need to reduce inventories with the feeling that their stores simply look naked as a result. For many, the fact is that they had too much inventory to begin with, but that doesn’t change their instinct that they’re out of stock. They look at their sales floor and it looks like zombie space to them too.
SKU rationalizations and inventory reductions, however, create opportunities for independent retailers to take a fresh look at their space utilization and merchandising techniques, and take steps to offer their customers a reinvigorated shopping experience. Here are a few thoughts that have proven over time to help merchants sell more with less, focused on apparel retailers, but with applicability to other categories as well.
Eliminate shoulders and sleeves. If you no longer have so much merchandise that you have to warehouse it on jet rail, circular racks and just about any other form of straight rack, hang it facing out so customers can see the fronts of garments, where the true appeal is. Even if you need to invest in reconfiguring some wall space or buying several T-stands or 4-ways, my experience has always been that customers will pay back the investment, and then some.
Stop folding. This is the exact same concept as hanging garments face out. Rather than folding garments into a small square and stacking them on tables in mini towers, lay them out fully unfolded in a fan. The fewer units affords you the opportunity to greatly increase both the eye and impulse appeal.
Don’t just spread things out if you need to take racks and tables off of the floor. Use the opportunity to add complementary décor and embellish displays in distinctive ways. Create new sightlines, adjacencies and traffic patterns that introduce customers to merchandise in new and compelling ways. Adjust lighting to create a whole new feel.
Even when times have been good, I’ve always challenged my customers to sell more with less. Lighter inventories may be a business necessity right now, but that necessity also creates excellent opportunities for independent retailers to take a fresh look at their merchandising, and dramatically enhance the customer’s shopping experience.
The Retail Merchandising Funnel
Posted on May 04, 2009 by Ted HurlbutThink of it this way. Vendors pour all of their items into the top of a funnel, but the retailer determines how big the opening at the bottom is going to be. If it’s too big, the retailer ends up with too many items in their store, making the store difficult to shop, and, in effect, asking their customers to do the sorting for themselves. Customers are only willing to do this so much before they give up.
If, on the other hand, the opening at the bottom of the funnel is too small, not enough items will get through, leaving the store under-assorted, limiting the customer’s selection, and costing the retailer sales. A retailer must know exactly how big the bottom of the funnel must be, how selective they must be, in order to provide a compelling assortment and presentation that maximizes sales while turning the inventory.
Test Before You Leap
Posted on Apr 29, 2009 by Ted HurlbutNew items and categories are the lifeblood of any small retailer. In a highly competitive environment where customers are precious commodities, selling your existing customer base additional items is usually far easier than attracting new customers. But not every new item or category that you try is going to be a winner, no matter how much you believe in it.
Vendors take the same approach to new items and categories. To hear them tell it, they’ve never sold a dog. “You need to make a statement with this, it’s going to be huge!” Really? How much have they sold so far? To who? Have there been any sales at retail to date? Have they taken any reorders? If they believe so much in this, will they take back any you don’t sell?
Before you leap, test. Stick your toe in the water before you jump in. As much as a sales rep wants the big initial order, I’ve never known one to turn down a well thought out test order. If it’s a winner, you’ll know quickly, and then it’s a question of managing risk as you try to determine how high up is. And if it’s a dog, your downside is modest, and manageable. It’s your cash, after all.
Over-Assorted Retail Presentations
Posted on Apr 23, 2009 by Ted HurlbutOver-assorted retail presentations lead to excess inventory tying up cash, damages, obsolescence and markdowns. Because there's so much, nothing stands out, so impulse appeal is destroyed, as does the customer's sense of urgency. Sales suffer, margins erode and profits sink. I've seen it too many times; when over-stuffed stores cull their assortments to create more compelling presentations, sales margins and profits go up. I call it lean retailing - doing more with less.
Reassessing Retail Assortments
Posted on Mar 07, 2009 by Ted HurlbutWhen times are good and there’s a lot of cash floating around, new store formats and categories of merchandise suddenly appear. This was true for those seasonal mall Christmas stores of the late 1990’s and early 2000’s. Conversely, when there’s not as much cash around, those categories and items are no longer sustainable on the same scale, if at all. There were few seasonal Christmas stores this past holiday season.
This can also happen within your own store. When sales are declining inventories have to be tightened. Most small retailers are loathe to tighten their assortments, however, even when sales are off and they have to bring their inventories down. As a result, inventories remain too high, turnover slows, and precious cash is left tied up in stagnant merchandise.
I address this in my new article, “Reassessing Assortments in Challenging Times”. In this economic environment, nobody can afford to have cash tied up in excess inventory.
Ted Hurlbut Principal of Hurlbut & Associates Welcome to my Retail Blog. Here is where I empty out my brain of all things retail, and offer my perspective, insights and opinions. Please share your comments so we can keep the discussion lively, interesting and beneficial.
