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The Retail Tug of War

  
  
  

It's the tug of war between aggressive merchants and prudent managers.

When I started in retail, training to become a buyer, I got my first taste of the retail tug of war. I remember my first planning meeting very well. It's a story that has relevance for independent retailers today, as we begin to plan for 2010.

On one side of the table were the buyers, planning from the bottom up, following the fashion trends, and seeing big increases there for the taking. They believed in planning for an aggressive increase, and backing it up with product in the stores. They couldn't sell it if it wasn't bought, they believed, and getting it sold was how they made their bonus. Trust us, they would say, it'll be good, it'll sell.

On the other side were the Merchandise Controllers (with Finance lurking in the shadows), waving their histories, open-to-buys and markdown budgets. They didn't see a rational basis for such an aggressive plan. They had crunched the numbers and what the Buyers wanted just didn't add up. They understood the financial implications if all of that inventory were bought, and ended up getting marked down. Their bonuses were on the line. Let's plan conservatively, they'd say, and you can chase if you start to break plan.

In reality, there's a lot to be said for both points of view, which is why senior managements actually encourage the give and take. The right approach isn't always cut and dried. Like many things in life, it depends.

For independent retailers, this tug of war can take on an added dimension. In a closely-held business, the debate may spill over from the store to the kitchen table. Or, the debate may go on inside the head of a single owner, as he wrestles with how best to approach a new season.

It's the tug of war between aggressive merchants and prudent managers. Put another way, it the back and forth between those who primarily focus on the top line, and those who are more focused on the margin line, and the bottom line. In independent retailing, both are powerful instincts.

For merchants, their focus is on sales and revenue growth and increasing market share. If we continue to aggressively grow the top line, they think, it will take pressure off of our expenses, we'll have more to reinvest in the business, and the profits will flow from there. Find the hot item, and ride it hard. If I stock it I can sell it, but if I don't I can't.

For managers, their focus is on hedging bets. If we're most likely to sell 500 units in a classification, let's plan for 500, not 600. Let's not buy merchandise we're not likely to sell. Those extra 100 units are inventory we'll have to carry (and finance), and we'll probably have to mark it down to move it through. Let's plan prudently, protect our margins, manage our expenses and be sure to deliver a profit.

I've always liked to use a baseball analogy to think this through. If a batter has worked the count to three balls and one strike, they're sitting pretty. The pitcher has to throw them a good pitch, probably a fastball right down the middle, or risk walking him. So the batter takes a deep breath, digs in, and prepares to drive the ball, hard. It's time to swing for the fences. 

Conversely, if the pitcher has the batter down, no balls and two strikes, the pitcher is in control. He can nibble for a pitch or two, see if he can get the batter to swing at a ball outside the strike zone. The batter in that case knows he has to choke up, shorten his swing, protect the plate and be ready to swing at anything close. He'll foul off the close pitches and hope for something he can shoot back up the middle for a single.

In retail, when the sales trends are running with you, it's the time to take more risks. Find those hot items, stock up and pound away. Add more sizzle to your assortments. Have a bias toward more inventory rather than less. Lead with your best, and swing for the fences. Be an aggressive merchant

When the sales trends are running against you, however, it's time to be more cautious, protect your cash, and focus on the bottom line. Place fewer long bets. Narrow and focus your assortments. Let the business come to you. Sell and chase. Have a bias toward less inventory rather than more. Take each pitch back up the middle. Be a prudent manager.

Over the past couple of years, independent retailers have had to manage their businesses very prudently, with a particular focus on cash flow. For many, this has grated against their natural instinct to be an aggressive merchant. After all, they are entrepreneurs, who understand and accept risk, and are optimistic by nature.

The decision to proceed aggressively or more cautiously comes down to the environment you find yourself in. Most independent retailers recognize that they can't plan for a significant turnaround in their business at this point until they actually see it happening. And for every one who believes a turnaround is right around the corner there are ten others who are preparing for a long, slow, tough slog.

The time to swing for the fences will come again. Unfortunately, it's not likely to come soon. In the never-ending retail tug of war, finding the right balance between the aggressive merchant and the prudent manager is always a challenge. Looking to 2010, prudence remains the order of the day.

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