There is an art and a science to retail. A key part of the science is managing the inventory well so that the investment that you have in your single biggest asset is maximized. As founder of Management One (which is the inventory planning tool that I use), Marc Weiss spends a great deal of time analyzing data. He shared a story with me about lost opportunities – particularly interesting given the tremendous growth of our clients this spring. Early results show that they were up an average of over 14% for the month of March.
These two stories that Marc shared with me clearly illustrate the importance of planning your store’s inventory by classes. You see, when a customer enters your store they are voting with their dollars about what they like and want you to carry. The way you keep track of this information is by grouping like items together into classes of inventory. Read these stories and you will understand the significance of looking at your store at the class level.
Case 1: This store is trending at half a million dollar annual rate and over a 50% maintained mark up for last year. They decided they no longer believed in a specific class and they refused to buy into the class, even though I felt there was significant potential. Along comes this spring and in January they once again decided to land goods, and now they are beating plan and rebuilding this class. They did spend money in some other classes, and overspent in one class significantly beyond our plan.
The sales in the class they overbought never materialized to the extent of the overbuy. They did not replace the tens of thousands of dollars in lost profit by not buying into the original class. This client lost revenue, profit and increases all because of being over-opinionated about a specific class. Had they bought into the original class and still overbought the class they felt strongly about, they would have achieved a better result.
Case 2: This is a sad similar story but here the store did not even look to replace dollars somewhere else. They ignored the plan, ignored all suggestions, and while the rest of the retail world is on fire they dropped 9.3% for the month. They in turn probably lost market share and in one class alone dropped approx. $11,000 in the month of March. That is a lot of volume for a $650,000 store. Their stated reason is, “They don’t like the class.”
The way I look at it is that each class represents its own business. There are problems and opportunities in each class of inventory. That is the puzzle we solve every month. I am here to make sure that they are aware of their need to react and not abandon classes that are critical to their success. When a retailer doesn’t take action, the results can be severe. Consider the consequences:
- Loss of market share to a competitor
- Loss of profitable business
- Stock is out of balance and it is harder to sell other items
- Expensive investment to rebuild the class from scratch
- Lose the rhythm of what is working in the class as you do not shop it at market. They have to play catch up and then a hot vendor goes to a competitor.
- Expensive marketing to get your lost customers back
It is NOT ok to rob peter to pay paul at the class level. Each class has its own destiny, its own demand. Starve the class and you starve the store. Our mission is to influence our clients to build their business profitably. What I do every day is help retailers to take sensible risks and to maintain the balance and flow to their inventory that in turns returns cash, profits, growth and market share.
There is an art and a science to retail. I have the science down cold. It can’t be ignored. Want to talk more about it? Let’s do it.