| THE
MARKDOWN BLUES
By Ed Cloeter
An affiliate of Management One®
It seems that the first months of the calendar year
always bear a lot of markdowns, not just because of
the mistakes you made from Holiday but also the over
reaction for the insatiable want of Spring business.
Matter of fact, there really isn’t a month or
a quarter that comes along that retailers don’t
accumulate goods that haven’t sold. It is often
regarded as “a fact of a Retailer’s life”.
No buyer is capable of being right 100% of the time.
However, most Retailers are habitually fighting excessive
markdowns that have been brought upon them because of
poor timing and over buying merchandise categories.
And, oh, how it has hurt their cash flow. There isn’t
much these retailers can do but to begin clearing the
goods through markdown incentives that will take a big
bite out of the profit line. These were mistakes made
months ago.
The
good news is that you do have control of future quarters.
Most of you to whom I write do very little planning
or any at all. If you do plan, you say “Oh well,
I’ll aim for an increase of 5% over LY”.
I see some stores with categories, or classifications
running above 10% and more. The opposite is true for
a few other classifications that can’t meet the
expectation of beating last year’s figures. So,
you can toss those plans. They seldom produce anything
but more pain, more markdowns and sidewalk sale fodder.
Let
me illustrate with an actual example. I have just witnessed
a store whose Annual Rate climbed $80,000 during the
last 2 months. How, would you begin planning increases
of that sort? How would you approach the remaining 10
months to go for the year? Likewise, I have seen a store
that may easily not see last years figures as a goal.
Should this store be buying in order to meet last year’s
goals or worse, yet, an added 5%? My hope is that it
will be profitable with fewer sales.
So,
what should you small retailers do to prevent this constant
crisis of markdowns and more markdowns? Planning! And,
what exactly should a small retailer be planning? How
should he /she go about preparing these plans? What
should he/or she do with them once they are completed?
Because most of you don’t wish to spend a buck
to make more bucks here are a few tips:
PLAN
SALES: In order to effectively manage your
inventory, you need to know what you expect to sell.
For all you “do it yourself” retailers,
develop a simple spreadsheet listing your sales history,
by month, by category (classification). You’ll
start, mistakenly, with last year’s sales history
because that is all that is available to you, and then
make adjustments for events and promotions. How do I
know? I did it, years ago. Most retailers would give
up already because there is much more factoring involved
in forecasting sales than what the retailer’s
glorified mind would wish for. Is your time valuable?
Why not seek out scientific planning from MANAGEMENT
ONE?
Your business will only be as profitable as the accuracy
of your sales forecast. Forecasting experts go way beyond
the spreadsheet to look at trending models and statistical
forecasts to achieve better accuracy. Getting a sales
forecast is not the goal; getting the right sales forecast
is essential.
PLAN
INVENTORIES: It makes little sense to bring in more
inventory at any given time than you need to support
your planned sales. Committing to inventory too far
in advance,
and then bringing it in all in one shot is one of the
surest ways to find yourself over-stocked down the road.
The difficulty is in determining how many months of
inventory are needed to support your planned sales.
In slower moving categories, you may need on hand 3
or 4 months of goods for a beginning inventory. Fast
moving merchandise could be anywhere between 2 and 3
months. Do you still want to do your own planning?
PLAN
RECEIVING OF PURCHASES: Here is the basic formula to
calculate how much inventory to bring in every month.
You need to bring in enough to cover that month’s
sales plan, the markdowns to be taken and ending inventory
of that month, less the prior month’s ending inventory.
Are you still with me?
PLAN
MARKDOWNS: I know some retailers who would plan nothing.
But, how much should you plan. To know helps you calculate
your purchases. After all, a markdown is the thief in
your store.
Once
you have completed your preseason planning, don’t
put it in a drawer never to be seen again. This should
be your tool and, done correctly, it should be updated
and adjusted at least monthly by each category (classification)
because some will be growing while others will be sluggish
and need to be drawn back. The most important skill
is the ability to use the plan to make the right decisions.
That is where an outside expert brings the most value.
Peter Drucker said, “every good idea degenerates
into work.” The same goes for good planning.
The
above is truly a brief outline. If you are sincere about
doing it, call on an expert to stumble through it with
you and help you decide if you will really commit yourself
to planning.
The
root cause of excessive markdowns can almost always
be traced back to the lack of adequate preseason as
well as in season planning. Many of you will find that
it is “no fun”, a luxury that you just can’t
afford. In reality, it is a critical necessity, a very
vital investment in the financial health of your store.
MANAGEMENT
ONE has a web site, www.managment-one.com
with similar articles on successful retailing, called
Winning @ Retail.
They are also leaders in Inventory Planning and business
management (Winning@Business™).
|
