By Josh Strutt
Associate Director – Deployment, Retail Doctor Group
“Fitness is not a destination. It’s a way of life.” – Anonymous
Every retailer is battling to win customers out there, and one of the most critical and often overlooked operational components to your business is the fitness of your stock levels. While you may have already purchased your stock; the way in which you command your inventory can win or lose this battle for customers as the lack of (or wrong) stock will see them disappearing to your competitors, sometimes never to return.
Commanding your inventory can be made easier with the implementation of good stock management systems (both computerised and manual) and a ‘fit’ retail marketing leader is disciplined in measuring sales, margin and stock positions in both detail and composition.
Here are some of our tools and tips that you’ll need to maximise your stock management effectiveness and therefore your profit.
The right stock management system wins profits
One of the most effective product management systems is known as Open to Buy (OTB). By using an OTB system, the performance of product groups – set up by department, classification or store – can be 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 planning to drive stock towards a controlled and desirable closing stock position.
Overstocking will lead to unplanned discounting and potentially damaging cash flow. What’s more, overstocking leaves you looking stale and new season purchases will more than likely be purchased out of your bank account rather than positive cash flow.
Retail Doctor Group’s Fit for Business™ Diagnostics found that an average of 20 percent of retailers do not have an OTB forecast system thus locking store profits where they could be opened to increased sales. Similarly, aged inventory is on average in-store 30-40 percent 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
“Forecasting and buying inventory requires a blend of analytics, intuition, strong boundaries and vision.” – Retail Doctor Group
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 percent of customer sales unfulfilled due to items being “out of stock”, the importance of the right forecast and stock cannot be underestimated.
Setting a merchandising ‘fitness’ plan
To achieve a truly ‘fit’ inventory, you will need a merchandising plan that focuses on stock turns, sell-through and prominent positioning. The key to ‘merchandising fitness’ is to focus on gross margins. While 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 the business more than too much inventory. Don’t forget that by using your merchandising management skills and some imagination, you can proactively control offers that head towards a desirable closing stock position and still respect your planned average margin relative to your desired level of sales.
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?
Half the battle is in the planning, so it’s 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 Sales are your best opportunities 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 always calculated based on understanding our historical and current statistics and forecasting the future accordingly. Put all the right systems into place, and you’ll lead your fitter retail business into battle with the right successful inventory.
Happy ‘Fit’ Retailing
Our Deployment team can help you improve your stock management processes. For more on Retail Doctor Group’s retail consultant services driven by our “fit for business fitness™” programs, email businessfitness@retaildoctor.com.au or phone 02 9460 2882.