GUEST EDITORIAL: USING DATA TO DRIVE BUYING DECISIONS
Do you know what would happen if a frog were to jump into a pot of boiling water? He would jump out – and fast! But if that same frog was put in mildly warm water that gradually got warmer until it was almost boiling, he wouldn’t realize what was happening to him until it was too late and would end up cooked—literally!
Retailers have an innate tendency to repeat the same behavior time and again, expecting different results. (The proverbial definition of insanity.) I suggest that they switch to a narrow and deep approach to assortment planning, driven by data. Consider a three-store operation that does 60% of its volume in the flagship with 35% of the inventory. The result is that the main store is constantly sold out of key items and misses business. While the owner is trying to prop up the smaller branch stores by over-inventorying them, the real opportunity is in the flagship. Let the data guide your decisions. Make sure you have enough inventory in the locations that are doing the business. Equity does not and should not apply to inventory decisions.
There are three criteria to review in your historical data when searching for growth opportunities: unusual sales gains, stock turns way above normal, and low cost of purchases (not cost of goods sold, these are two completely different metrics). Once all three are met, Bingo! There’s your potential opportunity. An example is my client who had been tracking recovery sandals (the brand happened to be Oofo’s) as part of a sandal category. They discovered that sales and turn were much faster than the overall class. They decided to break out the class on the merchandise plan and monitor it on its own. The sales plan was increased as was the planned turnover. In other words, they began flowing in merchandise more often. You might end up buying more, but the sales increase will more than offset the outlay of cash for the additional purchases.
Of course, this also means moving more quickly on slow sellers. This can be done through employee sales incentives (spiffs), vendor stock balancing, and/or marking down. Whichever method you choose, the right one is the one that moves the slow sellers quickly. Don’t wait for your twice-a-year sales; get rid of slow merchandise when it’s slow merchandise! Mistakes made in retail rarely turn into positives. Accept it and deal with it and you will be better off in the long run.
With vendors pushing for early order placement, retailers risk committing too much seasonal OTB to upfront deliveries. Stores that continually fall victim to this buying method don’t understand the power of new. Their hope is that they’ll get early sales, extend the selling season, and take advantage of favorable dating terms that delay payment. While this sounds good in theory, the reality is often an overstocked category upfront with open-to-buy tied up in preseason goods and stock-to-sales ratios out of line. Over time, the turnover ends up being less than it should be.
Of course, certain styles and sizes begin selling right away. Why? Because customers like fresh new merchandise. So, reorders are sent in to fill in the missing sizes. That’s fine, but too often the styles that are slow selling do not get addressed as quickly as the hot sellers do. This causes markdowns that could potentially erode margin. Seasonal carryover reduces turn even further, with a negative effect on cash flow. The financial inability to land new merchandise to drive additional full-price sales is problematic: old product, slow turnover, poor cash flow.
By utilizing the historical data available through any point-of-sale system, turnover can be improved, sales can be increased, and cash flow can become stronger. As I see it, you have two choices: jump out of the proverbial water and try a different approach like the first frog, or keep doing things as you always have and stay in the water until you’re cooked. You decide!
Ritchie Sayner is a consultant at Advanced Retail Strategies, an affiliate of Management One. He can be reached at ritchie@arsotb.com.
Photo, above by Pixabay.
