Inventory Planning vs. Vacation Planning
Many shoe retailers spend more time planning their vacations than they do planning their inventory. Of course I can’t prove that but it stands to reason given the fact that the average shoe store still turns inventory twice annually and is accepting of a GMROI of less than $2.
Importance of Proper Inventory Planning
If we accept as fact that proper inventory planning is a key component to maximizing profitability it makes sense that more time spent planning would lead to increased profits. Given that 50.2% of open-to-buy dollars are allocated to initial or advance purchasing and the remaining 49.8% are spent on in-season fill-ins and replacement orders (NSRA’s Business Performance Report 2006-07) according to my math that leaves nothing available for the purchase of off-price merchandise.
Off-Price Merchandise
Off-price merchandise can be a significant booster of business provided retailers understand six key aspects:
- What exactly is off-price merchandise?
- The benefits off-price offers to the retailer
- Common misconceptions
- When buying off-price works for a store
- When it does not
- Buying strategies
Understanding Off-Price
What exactly is off-price? Quite simply it is merchandise made available from a vendor at a discount taken from the original line price hence the term “off-price.” In fact off-price could be considered the markdowns that the vendor must take for reasons similar to a retailer’s reasons for taking markdowns. Slow-moving merchandise goods that were manufactured too late or not up to specifications are common reasons. Cancellations from large retailers are sometimes a cause as well. More often than not vendors get stuck with extra product when they have failed to forecast their customers’ needs accurately.
Benefits to the Retailer
When a store is able to procure off-price merchandise from a supplier it can serve to generate several benefits. If used effectively and the product is in-season better margins faster turnover and…
Increased Volume and Goodwill
Increased volume all result. If the special buy is used as a traffic builder and the “savings” passed on to the customer a “goodwill” element also is generated.
Common Misconceptions
From time to time I have heard retailers say that they don’t buy off-price because either they tried it once and it didn’t work well or they felt that they were buying someone else’s problem. Both arguments are faulty.
First just because something was tried once doesn’t mean that it won’t work the next time. Several questions must be asked in order to determine if the buy was good or not. For example how much was purchased? What was the price? Was it a good item from a vendor you usually buy from? Was the merchandise timed right? How was it marketed once it was received?
Regarding the second argument oftentimes retailers get an opportunity to buy into the very goods that they purchased originally. Other times a popular style becomes available for any number of reasons. By its very nature off-price buying has a certain element of risk but so does the shoe business in general.
When It Works
The benefits of off-price merchandise can best be realized when a retailer plans for the buy in advance. It is not always easy to predict what exactly is going to be available. This goes for vendors quantities price sizes colors and delivery timing. That being said when a retailer is in a healthy financial position and keeps open-to-buy dollars available for such buys more often than not deals can be found. Sometimes an off-price purchase can be negotiated in advance when an initial order is being considered.
When It Doesn’t
If a store is overbought to begin with buying more merchandise is generally not advisable no matter what the price is. You already have your own markdowns to worry about let alone someone else’s. This would be like pouring gasoline on an already blazing fire. If you buy more off-price merchandise than your company can handle it could lead to further financial strain.
Strategies and Pitfalls
Ritchie Sayner
MAY-JUN 08
Cohen also noted that “wellness” like “greening” is being hyped. “Wellness” can be a reason to drink water or juice instead of soda to wear magnets for health to use skin creams that claim an ability to fight wrinkles pimples or signs of aging.
In the more successful advertising messages education plays a part Cohen asserted because the typical consumer plows through 3000+ messages a day—on buses taxis billboards television screens store windows newspapers magazines radio and other venues. And people who use the internet see an additional 9000. Messages become a kind of clutter through which consumers must somehow navigate. They are offered all kinds of customization—when they enter a grocery or pharmacy for example consumers may see 50 varieties of the same toothpaste. So the goal becomes to convince the consumer that you have the product they need and want – which makes education essential. And “education” involves two parties: the consumer seeking it and the sales staff providing it.
“Service isn’t expensive” Cohen said. “It’s priceless. That’s the advantage independent shoe retailers have. Use it.”
- nsra.org can absorb you will be defeating the purpose and will not be able to benefit fully from the buy.
- Additionally if you buy product simply because the price is attractive yet it won’t stand up to the rest of your criteria you are doing your company a disservice.
- Remember the objective is to resell this merchandise quickly and make money. If you buy based on price alone you run the risk of getting burned.
Buying Strategy
If you are one of those folks who visit the gym once every quarter you probably don’t see much value. The same applies to buying off-price merchandise. Make it part of your regular merchandising strategy.
A basic open-to-buy strategy that you might consider would be to spend 50% of your money on initial or advance…
Orders
30% for fill-ins and reorders and keep 20% available for opportunistically-priced merchandise. An open-to-buy plan that is prepared by month store and classification would greatly simplify this process.
By allocating a portion of your open-to-buy dollars specifically for promotional merchandise you will become more disciplined about seeking it out instead of waiting until it is offered to you. Be persistent in asking vendors what merchandise is available. Ask them to contact you immediately when they break price. You may not always be able to buy but you should always take the time to look. Once you find merchandise that would be good for your store and you have confirmed that open-to-buy dollars are available don’t be afraid to pull the trigger.
Vendor Negotiating Process
Off-price can also be used in the vendor negotiating process. This may take the form of an upfront agreement. For example if you are buying more inventory from a given vendor than you had initially planned based on their insistence perhaps the resource would be willing to share the markdown burden with you should the additional styles not perform at an acceptable margin or a preset sell-through is not attained.
Remember that all of this is a negotiation. There are no pre-set rules and one size does not fit all.
Off-Price Buying Motto
With off-price buying your motto should be simple:
Buy the Best and Pass the Rest!
Ritchie Sayner is vice president of business development at RMSA Retail Solutions which works with retailers to improve performance. He can be reached at rsayner@rmsa.com.
Continued from page 4
Off-price merchandise can be a significant booster of business provided retailers understand the six key aspects.
Summary of Inventory Planning vs. Vacation Planning
The article highlights the importance of proper inventory planning for shoe retailers emphasizing that more focus on inventory can significantly boost profitability. It discusses the concept of off-price merchandise detailing its potential benefits such as better margins and increased volume while also addressing common misconceptions and strategies for effective purchasing. The key takeaway is that strategic buying particularly of off-price goods should be an integral part of a retailer’s approach to maximize business success.
“Buy the Best and Pass the Rest!”
Real-World Examples of Inventory Planning and Off-Price Merchandise
Here are some real-world scenarios that illustrate the principles of inventory planning and the strategic use of off-price merchandise in retail:
- A local shoe retailer in a bustling city allocates 20% of their open-to-buy budget specifically for off-price merchandise. By doing so they are able to offer competitive prices on popular shoe styles that were overproduced by the vendor. This attracts more foot traffic to the store increasing overall sales volume and customer goodwill.
- An independent clothing boutique strategically purchases off-price merchandise from a trusted vendor after a large department store cancels an order. The boutique times the release of this inventory to coincide with a local fashion event capitalizing on the increased demand and achieving a higher turnover rate.
- A regional electronics store negotiates with a supplier to include an off-price purchase clause in their contract. This clause allows the store to return unsold inventory for a shared markdown if certain sales targets are not met reducing financial risk and ensuring flexibility in inventory management.
