# 1 Way to Reduce Markdowns

Are you tired of having so much to markdown?  Are your red pens running out of ink?!  Tired of watching all that profit just go down the drain?

The #1 way to reduce markdowns and increase profit is to plan your inventory better.

Inventory planning is the secret that all the big guys and most successful stores utilize.  If they do it, why don’t you?

It was the secret to my profits.  It is the same secret that I use with all my private clients.  I have worked with Management One for 20 years to do that with me.

I invited Marc Weiss, a principal of Management One, to share more about it here.

The High Tech – High Touch approach to Inventory Planning
by Marc Weiss

There are three different types of inventory planning that retail business can engage in. The first is top down planning. In this scenario, decisions are made at a high level and drilled down in to the planning process. The downside to this is that planning is driven based on management’s expectations or even the desired profits needed to show stakeholders. Hopefully it would be guided in some measure on past performance. Forced increases or planned decreases are not necessarily driven by market conditions. Decisions are made at a high level where there may be significant distance between the decision maker and the customer.

The second option for planning is bottom up planning.  This type of planning is dictated by how the customer votes with his/her purchases. This planning reacts to current and past customer demand and is more reflective of current market trends. The downside to this type of planning is that it can miss opportunities that the market has not yet seen. It omits the art side of the buy and doesn’t allow merchants to take necessary risks to grow their business.

The third form of planning is interactive. It is a blend of top down and bottom up planning. Bottom up planning is at the core of this but it also allows for some guidance from management to make top down decisions. Management One® believes in a “high tech – high touch” approach to planning that more closely resembles interactive planning.

How interactive planning works at Management One®

  • Bottom up planning is based on both short term and long term trends.
  • Analysis is based on opening up opportunities. Forecasting logic reacts to current trends and drives revenue forecasts to feed opportunities and starve problems.
  • Trained planners utilize national and regional trends to impact decision making.
  • Affiliates and clients feedback is valuable information to planners to help maximize opportunities.
  • ‘What if’ scenarios are developed for risk-taking to grow specific areas of the business.
  • Local events that are strong enough to influence the business are considered. For example the strength of a football schedule in a college town can have a dramatic impact on the plan.
  • Turn rates for clients are based on location, type of class, assortments, cash flow considerations, volume and profit potential.
  • Markdowns are considered as a healthy part of planning.
  • Gross Margin and Gross margin dollars are considered as part of a holistic approach to planning. Profit potential that exists in every store is carefully protected so that classes that are essential to the maintenance of the business are not sacrificed.
  • Proper balance of inventory is achieved through an effective classification structure.
  • Inventory flow is based on peaking inventories at the right time and maintaining a fresh flow of inventory to ensure customer demand.
  • Flow and balance are key ingredients in growing sales and generating profitable cash flow.
  • Reporting that allows users to make decisions on inventory performance, cash flow planning and to develop meaningful merchandise strategies.
  • Sales forecasting that is dependable and allows management the ability to budget effectively.

Thanks Marc for sharing your expertise and knowledge with us.

I see that there is a fourth way of planning.

It is called “Seat of My Pants” planning! Decisions are made by gut or because the sales rep called or because a customer asked for it. Store owners don’t start out intending to run their store that way. You know exactly what I mean.  Money is spent without a specific decision behind it.  It ALWAYS wreaks havoc with cash flow and profits.

You deserve better than that.  You deserve fewer markdowns and more profit.  You can see how powerful interactive inventory planning is in so many ways.  It has been the key to the fantastic results that my clients have gotten.  I encourage you to start looking more critically at your inventory buys.

This is exactly why I started the Profit Club. You can save $1000 if you sign up by Friday at www.retailmavens.com/profitclub.

Fill out the application and we’ll call you to make sure it works for you and show you the money you will make because of your decision.  Here  is a real example of a retailer who signed up last week.

What would you do with an extra $67,000???

Contact me with any questions you have – I am here to help you get more profit, have more fun and get better sleep!

 

# 1 Way to Reduce Markdowns

 

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