Shoe Retailing Today
November/December 2004
Editor’s Note: SRT received the following comments in the form of a Letter to the Editor from Ritchie Sayner vice president of business development at RMSA the Riverside CA-based company which provides merchandise planning assistance. Sayner will be a speaker at NSRA’s February 4 2005 conference “Boost Your Bottom Line: Hot Ideas to Manage Expenses” in Las Vegas. To register for the conference please visit www.nsra.org.
Key Concerns in Shoe Retailing
Having studied the recent NSRA Business Performance Report several areas immediately struck me that should be of major concern to the shoe retailing industry. Perhaps of primary significance would be “Retailer Priority #2” from the survey of Top Seven list of retailer priorities for 2004:
Improve Inventory Control/Turn
Given the fact that the “typical” NSRA store has a sales volume of $809000 operating expenses of 44.5% and an inventory turn of two according to the BPR findings it should come as no surprise that cost-related issues dominate the retailer priority list. Noticing that improvement of turn did not top the list leads me to believe that several NSRA stores may not be aware of the multitude of positive economic ramifications that exist when turnover improves including greater bottom line and/or more for the owner in salary.
I would like to suggest that increased turn is not only entirely possible but essential if the industry is to maximize its true profit potential. The benefits that faster-turning stores enjoy are numerous and include the following:
- Increased sales volume (Priority #1). A balanced assortment of inventory consisting of a constant flow of fresh new goods delivered in the correct amounts and at the correct time is the single best defense against lost customers.
- Improved margin (Priority #3). Markdowns erode margin. The main cause of markdowns is buying more than a store can profitably sell. Stores that turn…
Faster Turnover and Reduced Markdowns
Faster-turning stores take fewer markdowns as a percentage of sales than slower-turning stores which are forced to take higher than normal markdowns to clear aging inventories and create cash to pay bills.
Improved Cash Flow (Priority #4)
Suffice to say that if the store is carrying a lower average inventory and generating the same or in most cases more sales cash flow will be stronger.
Reduced Expenses (Priority #6)
Operating expenses are expressed as a percent of sales. Operating expenses drop in percent as sales go up. Since expenses for shoe stores are at a four-year high an improvement in turnover with a corresponding sales increase reduces expenses.
My experience in working with shoe retailers is that even given the nuances of shoe retailing including sizes widths prepacks delivery problems etc. a 2.5-to-3-time annual turnover is entirely possible. I believe that one of the main reasons that faster turns are not being achieved is that shoe retailers accept the false premise that because the industry continually reports an “average” turnover of 2 historically that if they turn twice all is well in the world.
This line of thinking stymies the industry from growth by accepting mediocrity as the benchmark for which to aspire. In an attempt to think outside the (shoe) box if you will the following example illustrates the effect that increased turn has on inventory investment and GMROI.
The results detailed above are being achieved by shoe stores today that approach their sales and inventory planning from the bottom up and at the classification level. The reduction in average inventory alone could in effect add to the bottom line as well as to the owner’s compensation. Perception becomes reality and changing the perception of what is “OK” in terms of turnover is long overdue in the footwear industry. If the example provided above were to become the norm the statement in the BPR confirming the
Possibility of “Succeeding Very Profitably in the Independent Retail Footwear Business”
This would ring even more true than perhaps it does today.
Ritchie Sayner: Improved Inventory Turn Is Possible—and Essential
- Typical NSRA Store
- Store with 2.5 turns
- Store with 3 turns
Sales: $809000 $809000 $809000
G.P.%: 46.5 46.5 46.5
GP$: $376185 $376185 $376185
Turn: 2 2.5 3
AI @r: $404500 $323600 $269667
AI @c: my keyword77171 my keyword41737 my keyword18114
GMROI: 1.72 2.65 3.18
For a copy of the BPR email info@nsra.org or call (410) 381-8282 ext.318
Summary of Shoe Retailing Today
Ritchie Sayner highlights the importance of improving inventory turnover in the shoe retailing industry emphasizing its potential to increase sales volume improve margins and enhance cash flow. He argues that a turnover rate of 2.5 to 3 times annually is achievable and essential for maximizing profit potential challenging the industry norm of a 2-time turnover.
“Changing the perception of what is ‘OK’ in terms of turnover is long overdue in the footwear industry.”
Real-World Examples of Improved Inventory Turnover
The concept of improving inventory turnover is crucial in various retail sectors. Here are some real-world examples where businesses have successfully implemented strategies to enhance their inventory turnover resulting in increased profitability and operational efficiency.
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A popular fashion retailer implemented a data-driven inventory management system allowing them to predict trends and adjust their stock accordingly. This led to a reduction in excess inventory and increased their turnover rate from 2 to 3.5 times annually.
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A major electronics chain adopted a just-in-time inventory approach reducing warehouse costs and increasing inventory turnover. By aligning their supply chain more closely with customer demand they improved their cash flow and reduced the need for markdowns.
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An independent bookstore focused on curating a dynamic selection of books by frequently refreshing their inventory based on customer feedback and sales data. This strategy boosted their inventory turnover rate enabling them to increase sales volume and reduce operating expenses.
