Being “Fresh” is a Good Thing…(if you are a retailer)
One of the athletic trainers at the gym where I workout is fond of stating that “you can’t out-exercise your fork.” Simply put you can workout all day long but if you are unwilling to change your eating habits and consume fewer calories than you are burning off you are simply not going to lose weight.
Retail Business Analogy
I find this analogous to the retail business in that you cannot buy your way out of a problem. Sure you might increase your sales volume a bit but if you are not improving GMROI what is the point?
- I see several examples every month from stores that are getting double-digit sales increases in one or two classifications only to end up buying more inventory than the increase justifies.
- If sales are trending up let’s say 10% and you are not missing business by being understocked what is the justification to buy 20% more inventory?
Yet this is what I see happen often. Just as it is not advisable to chase the price of a stock that is going up chasing a hot item or trend too aggressively can have just as bad an outcome…lost revenue!
What typically happens in this scenario is that when the average inventory builds at a rate faster than sales the turnover slows the margins might suffer if excessive markdowns are needed to clear remaining stock and believe it or not the operating expenses can also increase.
This can become especially dangerous in stores that only look at past sales volume when planning next year’s or next season’s sales forecast. For reasons that escape me the stores in this group always plan for unattainable sales increases which typically leads to more inventory even if that level of inventory is unjustified. This is referred to as the non-profit cycle and it is very difficult to break if the merchandise planning is not approached properly.
Freshness: A Key Metric in Merchandise Planning
One of the tools that I am most fond of on the Management-One merchandise plan is known simply as “freshness.” What freshness measures is the amount of inflow (receiving @retail) each month for the past 30-60-90 days as a percentage of total retail inventory in the classification department or store.
Importance of Freshness
What I have observed by focusing on this important metric is that the higher the freshness factor is the better chance the store has of profitable sales increases faster turnover and by extension improved cash flow. To the contrary when the freshness is consistently low say below 50% for 90 days we often find shrinking sales and stocks that are bloated with old goods. In this example half the merchandise is over three months old. In a fashion operation this poses a real problem. I doubt many of you have customers that come in asking to see what came in last season or last year! Today’s shoppers demand a constant flow of fresh new merchandise as well they should.
Freshness and Turnover
Another way to look at freshness is by equating it to turnover. Having a consistent 90-day freshness of 100% or greater every month would ensure a minimum stock turn of four times. This would be a reasonable benchmark for most fashion merchants.
Success Through Freshness
One of the many reasons that successful retailers are successful is that they are willing to do what less successful retailers are unwilling to do. Try focusing on the “freshness” in each classification and see how quickly unsuccessful categories become successful.
Ritchie Sayner
www.advancedretailstrategies.com
Summary of Retail Freshness
The article draws a parallel between fitness and retail emphasizing that just as exercise alone cannot counteract poor eating habits increasing sales without improving GMROI can be futile for retailers. It highlights the concept of “freshness” in merchandise planning which measures the inflow of new inventory and is crucial for achieving profitable sales increases and improved cash flow.
“Today’s shoppers demand a constant flow of fresh new merchandise as well they should.”
Real-World Examples of Freshness in Retail
The concept of “freshness” in retail can significantly impact a store’s profitability and customer satisfaction. Here are some real-world examples illustrating how retailers successfully apply this strategy.
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A popular fashion retailer Zara is known for its ability to quickly restock stores with new designs maintaining a high freshness factor. This approach keeps customers returning frequently to check out the latest arrivals boosting sales and turnover rates.
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Grocery stores like Whole Foods manage freshness by regularly updating their stock with seasonal produce and new products. By doing so they ensure that customers always find fresh items which helps in maintaining high turnover and customer satisfaction.
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Electronics retailers such as Best Buy strategically manage inventory by frequently introducing the latest technology gadgets and devices. This practice not only attracts tech-savvy customers but also ensures that older stock is minimized keeping the inventory fresh and relevant.
