As an indie retailer, doesn’t it seem like you are always buying? I get asked so often, “How do I know for certain how a vendor is performing for me?”
It is easier than you think to measure vendor performance. There are 5 steps to take. They can make all the difference. Every time I have clients do this exercise, a couple of vendors surprise them! You can think you know how a vendor is doing, but until you see the numbers you don’t know for certain.
1. Review vendor’s performance by dollars, not by units. Look at sellthrough by style or item – You will need to see how much was received at retail and what it was sold at. For example if you received $1000 at retail and after 4 months sold $200 and still own $800 – that represents a 20% sell through (200/1000). For most stores, we are aiming to sell 100% through in 4 months – so that is bad!
i. This will tell you what worked and what didn’t
ii. What didn’t work may be a negotiating lever to use with the vendor next time you talk to them!
2. Did you make money with them? At the end of a season, take the amount sold less the cost and then divide that number by the amount sold and finally multiply that by 100. That calculates the maintained mark up (MMU) for the vendor.
{(Sales – Cost)/Sales}x 100 = MMU
For most stores, we want this number to over 50%.
i. This will tell you what worked and what didn’t
ii. What didn’t work may be a negotiating lever to use with the vendor next time you talk to them!
3. How is it paid for (Credit Card, C.O.D, Terms)? You want to stay in control of your cash flow and so you want to get Net 30 terms at least. ALWAYS ask strongly for longer terms of payment. I instruct my clients to do this and they often get it.
4. Is the initial markup dictated or discretionary? This is crucial in determining profitability.
5. Are there areas of weaknesses and strengths in the line? It is easy to be sitting there with a rep and just order the entire line or an entire collection. Be sure to take the time to evaluate the vendor by class of inventory. Most all are stronger in some classes than others. Buy into the vendor’s strengths! Most buyers don’t do this and lose money because of that.
The bottom line is that you need to know what works for your store and what doesn’t. Then use that knowledge and get help from the vendor. Don’t let yourself be pressured by the vendor or sales rep. EVER. Usually, they recognize that the best relationship with a store is to partner together for mutual success. Use this information to make sure that you are successful with your vendors!