Sell Through: What is it and How to Use It
I will be the first to admit that until recently I never found using the metric of sell-through to be all that beneficial. Sure I knew what it was and how to calculate it but I never understood how to use it to make better buying decisions. I am beginning to see the error of my ways. Sell through can be an important tool when used to analyze inventory performance.
Understanding the Calculation
Sell through is a percentage of inventory sold versus inventory received during a specific period of time. It is a tool that can be used to improve markdown cadence with the result being the creation of more Open-to-buy by replacing slow sellers with newer product.
Assume you received 36 items—shoes socks dresses widgets it doesn’t matter. The period of measurement begins once the merchandise has been received and is available for sale. For purposes of example let’s say we sold 8 items of the 36 received during the first week. This would provide us with a sell through rate of 22.2% during week one of selling—not bad!
Sell through = (sales/beginning inventory) X 100% or in our example 8/36 = 0.222 X 100% = 22.2%
Utilizing Sell Through Data
OK great! What do you do with that interesting tidbit of data? Since I had no reference point from which to begin I consulted Marc Weiss President of Management-One the company that produces the merchandise plans that I use with my clients. Below is a good general schedule that could be used in most segments of the retail industry when evaluating sell through.
- First week: 20% or better (Fast fashion stores or categories should be 30% or better)
- Second week: 30%
- Third week: 40%
- Fourth week: 50%
- Fifth week: 60%
- Sixth week: 75-80%
- Seventh week: 1st markdown of 30%
- Eighth week: 2nd markdown of 50%
85% sell through by the end of week 8 is a respectable goal.
What Sell Through Teaches You
Understanding Sell Through
Understanding sell through helps the merchant make informed buying decisions and avoid lost opportunities. A sell through that is too quick might indicate a missed opportunity for more sales. Consider reordering if merchandise is available. On the other hand if the merchandise was intended to be liquidated quickly (think an off-price buy or perhaps a “dog” that you well… blew it on) you would want a fast sell through to speed the turnover of the inventory.
When Sell Through is Too Slow
If the sell through is too slow and sales goals are not being met by the end of week 4 corrective action needs to be considered to stimulate sales. Product training refreshing the floor presentation spif(f)s-sales performance incentive fund or PM’s-push money are all options that should be considered prior to the more costly first markdown.
Sell Through as a Tool
Clearly sell through can be used as a tool to increase inventory turnover. However since turnover is generally used in terms of an annual measurement sell through can be utilized on a more finite time period say weekly or monthly. Often retailers try to tie the two metrics of turnover and sell through together but I agree with Matthew Hudson when he referred to this practice in his article on the topic as “a mind-numbing waste of time.”
Reviewing Sell Through Performance with Vendors
Reviewing sell through performance with vendors is a great idea. Vendors need to know how they are doing compared to other vendors of similar products carried in the store.
Building a Template for Vendor Success
Build a template that measures vendor success over a given period or season. Oftentimes more favorable terms can be negotiated such as freight allowances return privileges advertising allowances (co-op) off-price buys and even markdown money if warranted to make a particular vendor more competitive.
Considerations for Invoice Dating
Something else worth consideration is the potential impact that sell through could have on invoice dating. Say for example you negotiated terms of an extra 60 days to pay the invoice. Assuming your sell through adheres to the schedule presented most of the goods would be sold by the time the invoice is due.
Identifying Fast and Slow Sellers
If you are not already using sell through to help identify fast and slow sellers consider doing so. You just might avoid lost opportunities and over time improve turnover which leads to better cash flow.
Ritchie Sayner
Summary of Sell Through: What is it and How to Use It
The article discusses the importance of the sell-through metric in analyzing inventory performance and making informed buying decisions. Sell through measures the percentage of inventory sold versus received helping retailers optimize markdowns and improve turnover. It also emphasizes the value of reviewing sell-through performance with vendors to negotiate better terms and identify fast and slow sellers.
“A sell through that is too quick might indicate a missed opportunity for more sales.”
Real-World Examples of Sell Through
Sell through is a critical metric in retail that helps businesses optimize their inventory management and improve sales strategies. Here are a few real-world examples of how sell through can be applied in various industries:
- A clothing retailer uses sell through data to assess the performance of its winter collection. By analyzing the sell through rates weekly they determine that jackets are selling faster than expected prompting a reorder to maximize sales while the season is still relevant.
- An electronics store reviews its sell through rates for a new smartphone model. The data shows a slower than expected sell through rate leading the store to implement a marketing campaign and offer a limited-time discount to boost sales and avoid excess inventory.
- A bookstore evaluates the sell through performance of a new bestseller. With a high sell through rate in the first two weeks the store negotiates with the publisher for additional copies and improved payment terms ensuring they can meet customer demand without cash flow issues.
