Retail Doctor Brian Walker says Christmas and New Year sales are a great chance for retailers to shift old or dead stock, but going about it the wrong way can mean too much discounting. Prepare for the festive retailing season with his inventory management tips.
In preparing for battle I have always found that plans are useless, but planning is indispensable. Dwight D. Eisenhower
As the retail industry draws towards its peak time of the year, every retailer is battling to win customers. Whilst your stock is most likely already purchased, the way in which you command your inventory can win or lose this battle so you need a firm plan to defeat.
Commanding your inventory can be made easier by the implementation of good stock management systems (both computerised and manual) and a truly “fit” retail marketing leader is disciplined in measuring sales, margin and stock position in both detail and composition.
Here are some of the tools and tips that you will need to maximise your stock management effectiveness and therefore your profit.
The right stock management system wins profits
Whether you are on-line, bricks and mortar or a true multi-channel retailer, one of the most effective product management systems is known as Open to Buy (OTB). Using this system, the performance of product groups, set up by department, classification or store, is planned in terms of dollars and unit sales and matched with corresponding levels of purchases, discounts and delivery periods.
If sales are rising, more stock can be purchased. Where sales of stock are lower, discounts can be used to increase the units sold thus reducing the closing stock target if necessary. A good OTB system will assist in driving stock towards a planned and desirable closing stock position.
Retailers who finish Christmas overstocked can be sure it will lead to unplanned discounting, potentially damaging cash flow. What’s more, overstocking leaves you looking stale at the start of the new trading year and new season purchases are likely to be made out of your bank account rather than positive cash flow.
Retail Doctor Group’s “Fit for Business Diagnostics” found that an average of 20% of retailers do not have an OTB forecast system locking store profits, where they could be opened to increased sales. Similarly, aged inventory is on average in-store 30-40% longer than the target dates nominated by management, again locking store profits, where they could be unlocked to increase inventory productivity.
The “fittest” retailers blend art and science into forecasting and buying
It’s a truism that the “fittest” retailers are those who not only take command of a good stock management system, but also excel in buying. Forecasting and buying inventory requires a blend of analytics, intuition, strong boundaries and vision. Unfit businesses often buy with their opinion, taste and relationship skills as their only negotiation weapons. With an average of 15% of customer sales unfulfilled due to items being “out of stock”, the right forecast and stock can unlock store profits and increase sales.
Setting a merchandising battle plan
Sending the inventory into battle requires a merchandising battle plan that focuses on stock turns, sell through and prominent positioning. The key to merchandising “fitness” is to focus on gross margins during this period. Whilst sales growth is necessary, a healthy margin growth is every bit as important as growing the financial health of the business and nothing damages the financial health of a business than too much inventory. Don’t forget that by using your merchandising management skills and some imagination, you can proactively manage offers that head towards a desirable closing stock position and still respect your planned average margin relative to your desired level of sales. There is no point in discounting items that are selling well, but equally it is better to clear poor performers in December than in January! Use your multi-channel retailing touchpoints to cross promote products ensuring integration and advertise your different channels wherever possible.
Fighting a losing battle – if stock is a problem, how do you avoid discounting?
There are times when stock just simply doesn’t sell for one reason or another. Before you consider discounting, there are other things you can do to try and move the stock at a better margin. Is it viable to move the stock to another store? Can you engineer a conditional offer that will benefit broader sales, whilst still solving your problem? Will your supplier assist? If you do need to discount your product can you gain a strategic advantage by making this a loss leader in your sales period? Don’t forget that your on-line store could be the perfect place to promote products that have already peaked sales-wise in-store
Half the battle is in the planning, so it is better to consider these questions sooner rather than later as if you manage and monitor performance diligently, you can avoid the effects of subsequent discounting.
There is little point in hanging on to dead stock “just in case”. Your Christmas and Summer Sale period is your best opportunity in the annual calendar to clean your stock rooms so use it to your advantage but make sure you use it logically and plan your management of it now.
Winston Churchill once said “However beautiful the strategy, you should occasionally look at the results.” Our best retail plans are based on understanding our historical and current statistics and forecasting the future accordingly. Put all the right systems into place and you’ll lead them into battle with the right successful inventory.
Happy fit retailing!