From Frogs to Sales: Harnessing Data for Smart Retail Decisions

Leveraging Data for Strategic Buying Decisions

Do you know what would happen if a frog were to jump in a pot of boiling water? He would jump out—and fast! But if that same frog was put in mildly warm water that gradually got warmer until it was almost boiling he wouldn’t realize what was happening to him until it was too late and would end up cooked—literally!

The Frog Story and Men’s Retail

So what does the frog story have to do with men’s retail you ask? Everything and here’s why. Retailers have an innate tendency to repeat the same behavior time and time again expecting different results. And according to the old saying we all know what that’s a sign of right?

Opportunities in Retail

Here’s a classic example of what I am talking about. If you want to grow your business you must look for opportunities. However according to my colleague Paul Erickson retailers often look in the wrong places. A retailer’s historical data can provide a “treasure trove of opportunity” if you understand what to look for.

Narrow and Deep

You hear this term often in retail circles but what exactly does it mean? Take for example the three-store operation described in the YouTube link above. The flagship store in this 3-store operation does 60% of the company volume yet only has 35% of the inventory. The result is that the main store is constantly sold out of key items and misses business.

In this case the owner is trying to prop up the smaller branch stores by over-inventorying them to increase sales. This is a flawed approach as the real opportunity to grow sales is in the flagship store. Let the data guide your decisions. Make sure you have enough inventory in the locations that are doing the business to grow. Equity does NOT and should not apply to inventory decisions.

The Classification Level

The classification level is another area where the narrow and deep concept can be employed. There are three criteria to review in your historical data when searching for opportunities:

• Unusual sales gains
• Stock turns that are way above normal
• Extremely low cost of purchases (not cost of goods sold these are two completely different metrics)

Once all three are met Bingo! There’s your potential opportunity. I have a client that recently did just this. They had been tracking recovery sandals (the brand happened to be Oofo’s but there are others) as part of a sandal category. What they discovered was that the sales were very strong and the turn was much faster than the overall class. The store knew they could do more business in recovery sandals so they decided to break out the class on the merchandise plan so that it could be monitored on its own. The sales plan was increased as was the planned turnover. In other words we began flowing merchandise in more often. You may end up buying more but the sales increase will more than offset the outlay of cash for the additional purchases.

Similar Merchandise Opportunities

This can also be done in any area of similar merchandise. You will end up buying more but that doesn’t necessarily mean carrying more. It does mean moving quicker on slow movers. This can be done through employee sales incentives (spiffs) vendor stock balancing and/or marking down. Whichever method you choose the right one is the one that moves the slow sellers quickly. You do not wait for your twice-a-year sale. You get rid of slow merchandise when it’s slow merchandise! Mistakes made in retail rarely turn into positives. Accept it and deal with it and you will be better off in the long run.

Frontloading and Carrying Over

The Problem with Seasonal Front Loading of Inventory

The biggest issue with seasonal front loading of inventory is that some stores commit too much of their seasonal OTB to upfront deliveries. Stores that continually fall victim to this buying method do not appreciate or understand the power of new merchandise. If they did they would change their buying habits. Their hope is that they will get early sales have a longer selling season and take advantage of dating terms that won’t require the merchandise to be paid for until a future date. That sounds good at face value but the reality is that the entire assortment doesn’t always sell quickly resulting in an overstocked category up front.

Since it’s overstocked all the open-to-buy is tied up in the preseason goods and the stock-to-sales ratios are out of line. Over time the turnover ends up being less than it should be.

Reorders and Their Challenges

Now come the reorders. Certain styles and sizes begin selling right away. Why? Because customers like fresh new merchandise.
So reorders are sent in to fill in the missing sizes. That’s fine but oftentimes the styles that are slow selling do not get addressed at the same rate of speed that the hot sellers do. This causes markdowns that could potentially erode the margin if not careful.

Seasonal Carryover and Its Impact

To compound the matter let’s address seasonal carryover. This practice reduces turn even further not to mention the negative effect on cash flow. The financial inability to land more new merchandise to drive additional full-price sales is another issue altogether. This happens primarily in seasonal classes like sandals and boots for a variety of reasons typically the weather didn’t cooperate or the category became overbought. Whatever the case the results are the same… old products slow turnover poor cash flow.

By utilizing the planning techniques outlined above and studying the historical data available through any point-of-sale system turnover can be improved sales can be increased and cash flow can become stronger.

As I see it you have two choices:

You decide!

Ritchie Sayner

Ritchie Sayner

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