The Over-Under of Inventory Buying: A Response


A recent survey of 200 “senior decision makers” in U.S. retail companies conducted by Coresight Research and Celect, found that 43% of respondents chose overbuying as a company challenge, and 36% chose underbuying. The survey went on to say that those respondents using “manual inventory management processes were more likely to say they were struggling” with issues related to over or under buying.

Now that this survey has actually quantified over and underbuying as a problem, what is the next step?  Given the vast number of solutions available at the push of a button for almost any problem facing us today, I find it inconceivable why so many retailers choose to struggle with an issue that is relatively simple to identify and affordable to remedy. Having invested the last forty years working for forecasting companies that offer automated inventory planning and open-to-buy models along with ongoing consulting by industry experts, there is no reason I can think of as to why a merchant would not consider outsourcing this function. What else needs to change for retailers to use the correct data to make more informed buying decisions?

Among common reasons (aka excuses) that I often hear for not utilizing an outside company for merchandise planning include ego, lack of accurate data, and cost.

A strong, healthy ego or belief in oneself is certainly one major cornerstone of every successful entrepreneur and clearly every independent retailer. However, once self-confidence becomes so over-inflated that it is detrimental to the organization, it is important that management recognize this and look for an alternative independent, outside perspective.

If a company lacks accurate data to develop and maintain a plan, either due to deficiencies in the point-of-sale system or lack of understanding of how to use the system (often the case), inventory mishaps are likely to occur. The easy remedy for this is to invest in a system that will actually provide the data you need after consulting with informed sources, then take the time to learn how to use it. The initial “cost” pales in comparison to the money being left on the table due to poor buying decisions resulting from inadequate data or no data at all.

Here’s a question to ponder. If you were struggling with cash flow issues due to past buying mistakes, shrinking margins as a result of too many markdowns, or out of balance inventories hindering the store’s upside volume potential, would you be willing to invest a reasonable amount of money to alleviate those issues? Let me share a typical example that I often encounter. I was approached by a store with a sales volume of just over a million dollars. The margins were fine and the operating expenses were in line with industry norms. The issue was cash flow. When the merchandising data was analyzed, the problem was obvious. There was so much old merchandise that the store was losing customers. Most of the operating cash was tied up in the inventory. This problem was caused by buying more merchandise than the store could sell profitably; the classic definition of overbuying. Overbuying is the result of either A) not having an adequate merchandise plan with which to make sound buying decisions by classification or B) not following the plan.

The store had an average inventory of approximately $800,000 @ retail, a large percentage being from past seasons. This worked out to be an inventory turnover of 1.25 times annually. Based on the mix of merchandise, it was determined that an initial turnover goal of 2.7 was achievable and a strategy was put into place to liquidate the old merchandise and begin buying the right amount in the correct classifications.  After the first year of working with this retailer, the inventory was reduced by approximately $430,000 @ retail or $215,000 @ cost.  The sales started rising as new customers began finding the store through word of mouth, and old customers returned. The margins did decrease temporarily due to clearance markdowns needed to move the old merchandise. However, the cash was so much better that the owner could hardly believe the transformation. The line of credit was paid off and the store’s buyers go to market armed with a solid plan knowing exactly how much to buy, when to land it and when to mark it down.

This example is typical of first year results. Most retailers will end up spending less on inventory, but wind up doing more business because the dollars are invested where they are needed most. On average a minimum three-time return-on-investment is typical for every dollar spent on merchandise planning services according to Marc Weiss, President of Management-One.

I see examples such as this all the time. Some stores choose to take advantage of the help they are offered and regain control of their stores and, by extension, their lives. Others unfortunately do not and almost always suffer the consequences. I often refer to the old definition of insanity which is repeating the same behavior time and time again in anticipation of a more favorable outcome.

Since roughly 60% of non-grocery items were sold at full price in 2018, resulting in an estimated $300 billion in lost revenues, it is easy to deduce that poor buying decisions can be expensive. The good news however, is that with the increased utilization of technology, “specifically better forecasting tools that leverage machine learning, that can help retailers know what to keep in stock and when.” As trite as it may sound, failing to plan IS planning to fail.  You decide!

The Psychology of Price

A quick search on Google and you will find millions of entries on the topics of pricing psychology and pricing strategies. I have elected to recap strategies that, at the very least, most retailers should consider to determine price.

In a practice still prevalent today, the retail price of an item is often determined by a buyer or receiving person applying a formula to the landed cost of an item in order to determine what it should sell for. Should cost really be the determining factor in what a customer is willing to pay? Does it have anything at all to do with perceived value? Of course not, yet we see this all the time.
I have questioned retailers about this topic for years and always get the same responses. Most typical are, “double the cost and add $2 (supposedly to cover shipping),” or “multiply the cost by 2.2.”
One strategy that I have used with buyers at market was to determine the selling price prior to knowing the cost. To do this effectively, a retail buyer must answer the question, “What will our customers be willing to pay for the item?” Once the cost is revealed, a determination can easily be made if the item fits within the company’s markup strategy or does not.

Let’s discuss some additional strategies that you might consider as you determine price going forward.
• Remove the comma // Research has found that removing commas may make the price seem lower. For example, $1,499 vs $1499.
• Round price // Round prices are more fluently processed as opposed to non-rounded price points. Consumers can process a round price quickly. Non-round prices need more mental resources to process. Round prices are also more effective for emotional purchases, with this caveat: Try when possible to avoid price intervals like $100 or $500, as the assumption may be that they are artificially high and plucked out of thin air.
• Use of a premium price to set an expectation of excellence // The iPhone X selling for between $999-$1,149 is significantly higher than past models. Approaching or breaching the $1,000 threshold is noteworthy. Boosting prices into the four- digit realm crosses an important psychological barrier.
Here’s another example that you may remember. In 1994, after a 14-year hiatus from their 1980 well-publicized breakup, The Eagles released a new album and embarked on a world tour. What was unique was that they were the first rock and roll band to break the $100 ceiling for concert prices. Eagles manager Irving Azoff stated that this had nothing to do with supply and demand, but rather a statement of quality. Fans would once again get to see and hear a great American rock-and-roll band, not a washed up “oldies” show. This was a fascinating use of price as it set a belief of excellence in the mind of the consumer. I saw this show … and it delivered!
• Discount pricing // This is the high/low pricing strategy. Was $70, now $35. You save $35. It is important when using this strategy to frame the sale around the savings versus the amount being spent.
• Reduce the pain of paying // Uber revolutionized the taxi industry. With traditional taxi rides, you watch the meter increase with each minute stuck in traffic or each mile traveled. This evokes a painful sensation. With Uber, you know what the trip will cost before you start, and it’s billed right to your credit card. The perception of payment is also distorted by the use of gift cards and casino chips, two additional payment methods have that have created a separation between the customer’s money and the payment.
• Remove the $ // $$$ can remind some people of financial pain. Ever notice that some restaurants are now pricing menu items without the $?
The next time you are tempted to slap up the 25 percent off sign and call it good, remember that percentage off pricing is irritating to the customer. It is tremendously overused and less profitable to the retailer.

The psychology of pricing is a fascinating topic. I would encourage all retailers to experiment with a few of the points discussed in this article. You might discover a more profitable way of pricing your products

The Nine Secrets of Retail Success


Given the many bankruptcies and store closures the retail industry encountered during the past year, is it any wonder that retailers across the country are somewhat frazzled? In fact, by October 25 of last year, the US had already broken a retail milestone for number of store closures not seen since the 2008 financial meltdown. Nearly 7000 retail locations closed in 2017. This represents more than a 200% increase over the previous year.

As always, there are nearly as many different reasons for why as there were closures. Increasing internet shopping is only one of them, albeit a legitimate one. Financially troubled chains, inventory issues, changing consumer tastes, sameness of selection, weather, even politics, are among the many reasons contributing to the retail apocalypse.  One of the biggest factors however, is the fact that we are simply over-stored in this country.

The good news however, is the fact that retail is actually alive and well. The 2017 Holiday Season saw nearly a 5% increase in sales including both online and in-store. Retail jobs are not vanishing, in fact they are gaining and the future is bright. New stores are opening and existing stores are expanding. The tax reform bill signed in Dec. of 2017 will have a positive retail n retail.

Given that as a preamble, allow me to present, The Nine Secrets of Retail Success.

Secret #1. Simple is Best.

Retailers are finally learning that having more products won’t necessarily win over customers. We are already overwhelmed with too many choices. Who wants to dig through racks of sameness to find one great item? Not many. Remember the KISS method…Keep it Simple Stupid.

Larry Schwartz maintains in his book “Paradox of Choice”, that given too many choices humans will simply not be able to choose. Many experiments have proven this to be true. One such study was conducted by Professor Sheena Lyengar from Columbia. In a California gourmet market, a booth was set up with samples of W&S jams. Every few hours the offering was switched from a selection of 24 jams to a group consisting of only 6. On overage, customers sampled two jams regardless of assortment size. 60% of the participants were drawn to the larger sampling while 40% stopped by the smaller one. What’s interesting is that 30% of those who were drawn to the smaller assortment bought while only 3% exposed to the larger assortment did.

Presence of choice might sound appealing as a theory, but in practicality more choice is oftentimes overwhelming and results in lower sales. The takeaway…More is not always better!

Keeping thing simple applies to your presentations, email blasts, social media posts, and especially your windows. You don’t need to put a sampling of everything you sell in the front window.


Secret #2. Expand Your Categories

Consider a display of items made in your community. The idea here is to keep a store’s brand somewhat regional. Once regional chain in the Midwest decided to try this concept with no set sales goals. They ended up doing millions in apparel, glassware, blankets, jewelry, handbags, belts, scarves, candles, and bath products. Not every item is right for every store. The point is that if you think outside of the box, products are available that have a local connection.


Secret #3. Build Customer Loyalty.

This is a hot topic in retail today and it starts by capturing customer information.  Case in point, nearly half of all households in the U.S. are Amazon Prime members. Since sales to Prime customers are nearly twice that of non-Prime shoppers, brick & mortar stores have become challenged to find ways to keep customers coming in.

Once such method offered by Restoration Hardware is the RH Grey Card.  For an annual fee of $100, customers get 25% off in every department, 10% additional savings on sale merchandise and design services, and early access to clearance events.

Loyalty programs, also know as frequent byer programs, have now become commonplace with most retailers.  To be effective, there must be perceived value. The key element in that the customer knows that by being part of the “program” that they are not getting the same offers everyone else does. One note of caution however, and that is to make certain that you understand what your loyalty program is costing you.


Secret #4 Provide Legendary Customer Service.

Shoppers are tired of being considered faceless numbers in a crowd. They are willing to pay for a better shopping experience. A recent study showed that over 2/3 of Americans spend 14% more with a company they believe delivers excellent service.

Saks Save Me service allows shoppers to call a dedicated number to resolve fashion emergencies and in some markets even sends a wardrobe van. Some preferred customers are offered rides home in a chauffeured BMW.

A colleague of mine who flies often for business, has been shuttled between connecting planes in a Porche simply because the airline values his business.

Guarantees and no-hassle return policies are an important part of customer service. You don’t have to look further than Zappos to see just how loyal customers can be if a brand convinces them they simply can’t go wrong thanks to their liberal return policy (Is Your Return Policy Hurting Your Business, SRT May/June 2016). Believe it or not, customers who return 50% of what they buy are also the most profitable. When I see a sign at the register that states NO Refunds or Exchanges. All Sales Final, I cringe. Stores with this approach will have a hard time surviving. Most often you find this with smaller retailers. One reason among several, why they remain small…small thinking perhaps?

Customer returns are a way of life.  Online returns account for 1/3 of purchases. 30-60-day return policies are now the norm. But why make it EASIER for customers to bring things back? A recent Journal of Retail study made an unlikely discovery. The study claims that the longer a store allows a customer to return something, the less likely they are to actually return it. Something far off becomes more abstract. Something closer becomes more concrete and thus changes your subsequent action. This is known as The Endowment Effect. The longer your own something, the more it begins to feel like it is really yours.


Secret #5 Empower your Sales Staff.

Studies have shown that even after researching on line, comparing prices and reading reviews, 40% of customers remain open to persuasion once they enter the store. A well-trained, empowered sales force determines your level of sales. Without them, your store cannot maximize its true upside potential.

Take the Apple Store which enjoys the highest sales per square foot in the history of the retail business. Employees are taught to solve customer problems, not sell good.  The logic behind The Container Store is that they would rather offer $40K to one super employee than pay $20K to two so-so employees. Last year, the average salary for this retailer was $44k. That’s salary, they don’t pay commission. They put every new associate through 187 hours of training. They are obsessed with teaching employees how to sell and amaze customers. For the Container Store at least, the secret to great retail is their ability to motivate their staff. It seems to be working for them as they rarely have sales or offer special deals.

Every year the Ritz Carlton empowers every employee from a maid up with up to $5K to comp guests. The only questions asked of the employee is what happened and make sure it doesn’t happen again.

Reward good behavior among employees and listen to them. Introduce a suggestion box and have regular store meetings.


Secret # 6 Visual Merchandising.

There is an old retail adage that describes the need for visual merchandising perfectly, “goods well displayed are half sold.” Think of the best ads you have seen on television or in store windows. The most effective ones are clean and simple and have a clear message.  You might think of Duluth Trading Company as an example of what I am talking about.

Be sure to pay attention to the first few feet when customers enter the store. This is referred to as the “decompression zone”. This is the space where customers get the “vibe” or feel of the stores. From this point, 90% of customers will turn right upon entry. Your best and newest items should be represented here.

When it comes to instore displays remember the eye moves up toward the rear of the store. Avoid at all costs large displays in the front of the store that visually block the customers view of the entire store. Vary the height of display tables. Most stores I visit have 4-way clothing displays, t-stands and waterfall displays that are set too high. Unless you run a big& tall operation be sensitive to the height of the average (woman) customer.

Reduce clutter at all costs. Nothing shuts down senses and promotes shopper anxiety faster that a messy, unorganized shopping experience. This also applies to display windows. Avoid the temptation of trying to say too much at one time. Less is more. You don’t have to show everything you sell in the front window.

Finally, don’t neglect the only public place where you can take off all of your clothes and try on someone else’s…the fitting rooms. Most have bad mirrors resembling something you might find at a circus, inadequate lighting and poor ventilation.


Secret #7 Manage your inventory.

Inventory is the very heart of the retail store. The best retailers know that in order to keep customers coming back in and buying, they most have a constant flow of new merchandise. No one comes in your store to see what came in LAST YEAR. They come in to see what’s new! I call this The Power of New!  If two turns annually are the goal in a given classification, then a six months supply on average is what you will need to achieve it. If you want to turn 3X you should have very little older than 4 months in stock, 4Xturn= 90 days and so on.

The methodology by which retailers control their buying and hence manage inventory is known as open-to-buy. This mathematical formula serves a multitude of essential services for the retail. It provides for sales and inventory target goals, it provides guidance for how much to buy, it establishes benchmarks for evaluating progress and it can be used at any level desired.

A good sales and inventory forecasting too is essential to maximize success in a retail operation. A failure to plan oftentimes leads to a plan to fail.


Secret #8. Control Your Markdowns.

Today’s retailers know that relying too heavily on deep discounts to move excess inventory not only hurts margins, but can actually train the customer to wait for the sale. Hence, the way we frame a sales or price our goods is very important. SAVE makes customers see how much they saved versus how much they spent. % off sales are way overdone, irritating to the customer and dangerous for the retailer.

First of all, you are asking the customer to do the math and most are math-challenged. Secondly it that customers over time develop an immunity to the %’s. It takes a higher and higher % to get them to move. 20% barely moves the needle in today’s world unless it is used on an item rarely discounted.

A $25 coupon has more motivation than a 25% off coupon even though it represents the exact same discount on say a $100 item. A recent online study tested the effectiveness of various email offers.  $50 off a purchase was chosen as a good incentive that would still maintain sufficient margin.  Using the same parameters, 15% off offer was selected as being of equivalent value. The $50 off coupon had a whopping 72% higher conversion rate and generated 170% more revenue.

While poor buying including selecting styles, incorrect sizes and price points, duplications, and buying minimum quantities that are too large to absorb can all be root causes for excessive markdowns the #1 cause is still OVERBUYING!

90% of profitable sales come from inventory that is less than ten weeks old. Knowing that, progressive retailers identify slow sellers in season and react accordingly. Understanding the markdown truths especially the fact that the cost you paid has absolutely nothing whatsoever to do with the amount of the markdown is key to controlling markdowns.

Secret #9. Don’t be Afraid to Say NO!

The people you hire in the early days of your retail career are not always the ones you might hire later. The right skill sets and attitude for the stage your company is currently in should be a determine factor. Sometimes that means saying NO to a would-be employee who fits all the other criteria.

If a certain line doesn’t move you or more importantly your customers, don’t waste their time or yours writing token orders just because someone showed you the line. That’s their job. It isn’t personal, it’s business. One of the main reasons that I encounter for retailers getting overstocked and overbought is that they buy from too many vendors.

Finally, you need people in your organization with the smarts and confidence to respectfully say NO to YOU! Surround yourself with people in your company and outside advisors who have the integrity to stand up for what they believe even if it differs from what you may think.


Adopting these 9 Secrets of Retail Success will help you stay focused and profitable this year and beyond.

Like, How’s Your Vocabulary?

Stop constantly saying “LIKE” and you will immediately sound smarter!

With over 1,000,000 words from which to choose in the English language, why does it seem as if the word “like” is used well like so often? Perhaps because it tops many of the lists of most overused words in present day vernacular. Many of the top entries of words that have lost most of their original meaning include awesome, really, literally, ridiculous, whatever, seriously, and nice. But like takes top honors.

This misuse and overuse of the word dates back to the 1970’s when it became popularized by California’s “Valley speak”. Many young people use the word as filler in sentences, cluttering their speech and making them sound unsure of themselves at best and uneducated at worst. Unfortunately, the word has become more of a nervous linguistic tic or a lazy speech habit.

Common Misuses
Some of the most common ways the word like is misused include, making approximations, modifying adjectives and adverbs, and before a quote. You will need like, ten dollars. Using roughly or about in this approximation would be more descriptive. It was, like, the biggest spider I ever saw. Here, the word like adds absolutely nothing and should be omitted. Yelled or shrieked could easily be substituted prior to this quote, she was, like, “get out of my room.”

“Like” is one of those words that can be used in several different ways without being misused. It can be a noun, a verb, an adverb, a preposition, and a conjunction. However, it has become so overused as a placeholder or fallback word and misused today by politicians, television commentators, entertainment figures and the like (used purposely) that it has almost become acceptable.

Vocabulary Loss
It is interesting to note that the February 2000 edition of Time Magazine reported that in 1950 the average 14-year old had a vocabulary of about 25,000 spoken words. By 1999, that number had dropped to 10,000. This is unfortunate since a person’s vocabulary reflects his or her general knowledge. We can all draw our own conclusions as to why, but my list would include texting, email, Facebook, poor education, and way less reading and writing.

One recent Saturday afternoon, a friend and I went to a Kansas City Royals game. Seated directly behind us were two cute girls in their mid-twenties I am guessing. The young ladies, more interested in their conversation than the game, used the word, “like”, so many times we were both stunned. The conversation we couldn’t avoid overhearing, went from noticeable, to amusing, to downright annoying all because of their constant overuse of the word “like.”

Consider the Customer’s Reaction
I have often noticed sales associates at retail stores I talk with misusing the word. If you are catering to a more educated, upscale, middle-aged customer, your managers and sales people should be aware of this. Few things would turn a customer off faster than to have a sales person tell them, “like, those shoes are like totally you” or “like, that dress comes in like other colors too. Should I like see if we could like, order it for you?” Without embarrassing anyone, you could get the point across by making a simple game out of it. Every time the word “like” is misused, the accused puts a quarter in a jar by the register. This idea creates awareness and the habit would get broken quickly in a fun, non-threatening way.

Most of us overuse and misuse words from time to time in our everyday casual speech. I’m not suggesting that we all need to join the Linguistic Society of America, but can we please try to find alternative words for “like”? Seriously, it would be like really awesome if we could literally do that. If not, like, whatever dude!

You Can’t Afford To Make Every Sale

(Having trouble with assortment creep? Contact me, I can help!)

Naturally all of us would like to sell everyone that shows interest in our products. After all, that is exactly why we are in business in the first place. In the retail business, trying to sell everyone that comes into your store or finds you on the Web would be unrealistic and you most likely would go broke trying.

The old saying, “you can’t be everything to everybody” comes to mind. All good retailers have an identity or image and target a certain demographic of likely customers to market to. You certainly wouldn’t go into a store specializing in work boots looking for water sandals just as you wouldn’t expect to find cowboy boots in an outdoor store. Even the broadest assortment that might be found in an outdoor store carrying many different departments is governed to a certain extent by consumer demographics, size of store, or even the financial strength of the owner.

Stores that attempt to please everybody so as to not miss a sale, over time end up with a condition I refer to as “assortment creep”. The symptoms are easy to spot; lots of random inventory, duplications, broken sizes on popular styles, markdown opportunities from past seasons that may have been missed. In other words, a whole lot of nothing! This is difficult to spot on paper or by just reviewing inventory reports. You may observe that the stock levels are over plan, but sales are slipping for no obvious reason.

One solution I often share with clients who are struggling with this problem is the creation of a “model stock”. The easiest way to picture this is by starting from scratch. Assume you are opening a new location or you have nothing at all in the particular category. In the perfect world, you would map out exactly the way this should look. What lines you wish to carry, how many styles, what sizes and colors, a varied assortment of price points, etc. Next, you will need to extend out the dollars and see how much you have at retail and compare this number to your open-to-buy plan. If you are way over or short, you may have to adjust the model by adding or deleting. Congratulations, you have just completed step one of your assortment plan.

Step two is to compare your “model” to what you currently have. This is where the process gets interesting. You will find that over time, you have added lines that perhaps now are not important. You might find that you have been filling into styles that once valid, are now slow turning and may no longer be relevant. You might even discover that you have been ordering too many sizes that in reality end up on the sale rack or worse yet are carried over from year to year. What your goal should be is simply to put your inventory back into balance. In essence, this process is much like rebalancing your stock portfolio or 401k.

Once you have determined where the holes in your plan exist, it is now time to correct the problem. This is the final step in the process. Now that you have identified items that are not part of your model plan, mark them down immediately and turn them into cash. Use the funds generated by the cleanup to reorder the sizes that may be missing from the key styles that you wish to go forward with.

Creating model stocks works very well with almost every category of merchandise that has the ability to be reordered or filled into. Try this concept if you find yourself suffering from assortment creep. You will be surprised how many fewer customers walk out empty handed.

“Please Mr. Vendor: Don’t Hold a Gun To My Head!”

A while back I stopped by a local car dealership to check out a car I had seen advertised. The general manager informed me that the particular model I was inquiring about was not allowed to be sold at that location. That seemed odd to me, as the dealership represented only one line of vehicles. So I inquired as to the reason.

I was told that unless the dealership was willing to “invest” money (translation: spend it) to add an additional level onto their building, along with other costly improvements, the dealership would not be allowed to carry the model I was inquiring about. The manager was frustrated by the automobile maker’s policy, since he felt his company had always supported this manufacturer through a sizeable inventory investment. Add to that the expense of the existing building and all of the advertising they had paid for over the years to promote the brand and build a customer base. The rules of the game were clearly changing, nobody at the corporate level seemed interested in his concerns, and there was nothing he could do about it. To make matters worse, the manufacturer was spending huge amounts of advertising dollars to generate consumer interest in a vehicle that the dealer wasn’t allowed to carry. Feelings of resentment were growing.

Does any of this sound familiar?

I believe most vendors want to provide a good product at a fair price and want the buy/sell relationship to be mutually beneficial. However, certain vendors offer incentives from time to time as coercion to buy other products or lines that they want to sell. I advise retailers not to let vendor incentives, dating, aggressive discounting, threats, intimidation, deadlines, or ultimatums force them into making decisions that are inherently negative for their business. I find it a better business practice to buy products that sell well on their own merits because they are good products.

When incentives must be applied to motivate the buyer to buy, be wary. As a general rule, things do not end well when buying decisions are made under “pressure” circumstances. Below are just a few “sales” techniques you might want to be skeptical of:

“If you don’t increase your order by X% over last year, we will have to offer the line to your competitor.”
“If you don’t buy this special program, you won’t be considered a ‘Five Star’ retailer.”
“If you take delivery by X date, you won’t have to pay for it until Y date.”
“You have to buy X of specific product in order to maximize marketing dollars.”
“If you don’t get the order in by a certain date, you will lose a certain discount/delivery time, or the product might be sold out.”
“If you buy a certain quantity, you will get free freight.”
“We’ll even guarantee the sale.”
Let’s examine these sales ploys more closely and discuss options.

The threat of losing a line to a competitor strikes fear in the hearts of most retailers. It happens all the time anyway, so don’t worry about it. Do you really want a vendor thinking that they have that much control over your business? If you feel pressured to concede to this sales tactic, you don’t have much of a relationship to begin with. Also, you might as well plan on being bullied again in the future, since it worked this time. Course of action: Turn in the order that you feel comfortable with, and let the chips fall where they may.

In their understandable push for consistency of both product presentation and image, vendors for years have come up with programs designed to recognize their top dealers. On the surface, there is nothing at all wrong with this – unless you are striving to become a “Five Star,” “Diamond,” “Titanium” or some other coveted, precious element dealer for the wrong reasons. These levels of distinction often are accompanied by perks – greater discounts, return privileges, increased marketing allowance, payment terms, seats on advisory boards, and freight allowances, to name a few. If the size of your orders puts you into this category anyway, fabulous! You deserve the perks, and the dealer recognition is nice. On the other hand, if your ego has taken over your good sense and you are buying more than you should for the sole reason of achieving this distinction, you might want to rethink your priorities. Course of action: Buy what you can sell, and forget the gratuitous designations unless they make economic sense.

Oftentimes vendors offer special dating if you take early delivery. The pitch is great: Take delivery by such and such a date and you might get several extra months to pay for the merchandise. The idea here is that you will get a longer time in which to sell the product, perhaps even all of it before the invoice is due. Isn’t this retail heaven? Not really. Vendors want to keep factories operational and they want the product shipped to you as soon as available for a couple of reasons, primarily: (A) so you won’t buy from another resource, and (B) so you can’t cancel the order if sales slow because you already have it. The reason I don’t care for dating programs is simple: Once the merchandise is received, it begins to sell because of the power of fresh new merchandise. This means the goods you had planned to sell at this time may not sell as quickly, potentially leading to higher markdowns and slower turns. Remember when you are enjoying the extra months that there will be a day of reckoning: the date the invoice is finally due. Course of action: Though there are numerous exceptions and many cases where dating is favorable, it is best to buy the quantities you want as close to time of need as possible.

Sometimes you might receive an extra advertising allowance if your order reaches a certain level. This just might work for you, because if you have purchased more than you can sell profitably, you will need the extra ad budget for all of the sale ads you will be running. Course of action: Stick to your open-to-buy plan and buy what you can sell profitably. If you happen to qualify for the advertising allowance, great — but don’t reach too far, or the “free” advertising won’t be free after all.

One of my favorites is the enticement of getting the order turned in by a certain date or lose a certain discount percentage. Sometimes, you may be told, the product may even be sold out. It takes a lot more than a few discount points to make up for a 50% markdown if you have hastily submitted an order without thorough preparation. Also, I never understood how the product in question could be sold out when there were several more shows left in the selling season. Course of action: Take your time, do your homework. If the discount makes sense and you have seen all of the competing lines you need to in the category, pull the trigger.

In some categories free freight is a huge deal and obviously something to be considered. Course of action Know what the savings will be, prior to committing to quantities you can’t handle.

Having a vendor “partner” with you on goods they think you should buy can be a positive. Make certain all parties are clear regarding all terms – including any markdown money, return goods allowances, credits on your account, ending dates, etc. Oftentimes, these programs can leave a retailer with even more slow-moving goods the next season if not executed properly. Course of action: Make sure you have a vendor prenuptial agreement prior to embarking a partner program. Get it in writing by someone in authority.

I am not suggesting that sales incentives aren’t worthwhile. They are often very valuable. What I am saying is, don’t get greedy. Don’t let the “deal” coerce you into making a bad business decision. Always ask yourself: Would I be buying this if it wasn’t for the particular incentive(s)?

Setting goals and striving to reach them is admirable. However, when achieving a goal benefits one party while putting the other at a disadvantage, the purpose of the relationship comes into question. And the biggest danger that creates is losing the larger objective of mutual benefit to selfish, short-term motivation.

Manage The Bottom 30% for Better GMROI

I encourage every retailer to actively engage with all key vendors. The ideas in this post will help.

Jack Welch, the former GE leader, was widely known for his 10% rule. He would insist that the workforce was culled by 10% every year as part of a continuous improvement process. The genius of the policy was not necessarily that you got rid of the dead weight, but that it forced his managers to make a decision about how to deal with under-performing personnel.

A similar discipline should be adopted for inventory performance. I work with a store that is very diligent about this process and the results speak for themselves with better margins, double-digit sales increases, sales per square foot numbers that are 2.5 times the NSRA average, and an improvement in inventory turnover that is double the industry average. Their mantra is simple, they aggressively manage the bottom 30% of their inventory, along with vendor engagement.

Here’s How It Works

Every week the store’s buyers send vendor sales representatives reports detailing the activity (or lack thereof) of the styles being carried from their respective lines. If there isn’t acceptable sales performance within a 30 period, the store requests that the vendor take action. This action might be a swap out for another style, increased advertising allowances, clinics and incentives for sales associates, or in extreme cases a total return of the product. Obviously, consideration is given to any number of circumstances that could possibly affect sales, including seasonality and merchandise received with terms to name two. The vendors are asked to manage the bottom 30% of the styles purchased for that season. The store manages to remaining 70%.

This retailer evaluates vendors based on historical criteria that includes sales, margins, turn and GMROI. All vendors are reviewed in person every six months and are given a vendor report card. Vendors that meet and exceed the benchmarking numbers are rewarded with bigger orders. Vendors that fall short of expectations are dealt with in the following manner: the first 10% below the cutoff are contacted to see what can be done to improve performance. The middle 10% are put on notice. This is like retail purgatory. Things could go one of two ways. Either noticeable improvement is made or they could be the next to go. There are no surprises this way. The very bottom 10% are informed that the relationship has run its course and that they should move their success elsewhere. The management of the “bottom 30%” is an ongoing discipline that everyone in the company adheres to.

If there is no significant response from a particular vendor, the merchandise manager or owner may need to get involved to force action. After 45 to 60 days, if there is still no resolve and if sales do not pick up to a respectable level, the first markdown is taken. This action will most likely land the vendor in the bottom 10% range. The result of this ongoing analysis is that the store does not end up putting additional funding into lines that are not productive. Let’s say the average GMROI for a given classification is 2.7. Any line with performance less than 2.7 is identified via the POS reports. Things either improve according to the schedule outlined previously or the vendor is dropped, the merchandise liquidated, and the money used to reorder top sellers on lines that are performing.

Narrow the Resource Structure

This process helps the store to narrow the resource structure. If for example, Vendor A is responsible for $100,000 in sales and Vendor B generates only $5000 in annual revenue, it might well be decided to discontinue Vendor B if is determined that more volume cannot be generated, even if Vendor B is profitable. The additional dollars are then added to Vendor A.

This retailer is always on the hunt for new lines. A significant portion of open-to-buy dollars are kept available for reorders and of hot trending styles, fill-ins on basic inventory, an off-price buy, or a new line that needs to be “tested”.

Another common request from this store is that when possible the vendors are asked to “locker stock” inventory. Basically, this requires the vendor to warehouse the backup inventory being reordered weekly instead of the store having to. This practice alone reduces inventory and increase turnover.

In years past, this type of approach may have been considered too aggressive for some. In today’s retail environment, managing vendor assortment is essential. Brand loyalty must be a win-win. Gone are the days when retailers should be expected to buy a line unconditionally that is under-performing simply because they always have. Retailers cannot afford to carry a line for a handful of customers who, in some cases, don’t buy until the line is on sale anyway. The resource profits when the store profits. If the store is not profitable with a particular line, the sooner the problem is dealt with, the better.

Finding and Keeping Good Employees

How to find and keep good employees is a topic sure to garner an impassioned response from any retailer who is posed the question. One thing is certain, there are no easy answers. From the discussions that I had with retailers on this topic one thing is very clear; the interview process is the most crucial step in hiring and retention process.

If you were to look back at good hires, I believe you would find that they all had impressive interviews and all seemed likely to adhere to company values and have a full understanding of the job being offered. Conversely, when shortcuts are taken during the interview process or circumvented in some other way, potential trouble often lurks ahead.

One retailer I spoke with insists on two to three interviews over multiple days with key management personnel. He strongly encourages all retailers to know the laws in your state and to get everything on the table by asking good questions. Understanding the job description and time commitment are essential components that must be covered and well documented. Keeping good records as part of the personnel file is a must including signed statements from the employee stating that they have read and understand all aspects of the job description. This particular merchant has an initial review after ninety days and annually thereafter. Do not skip the annual review!

With regard to experience, prior experience is obviously a plus and is of course essential for key positions such as buying and store management. He offers that older employees offer stability and work ethic, but that there may be health issues to deal with. “Big personality” is key! The employee must be able to relate well to others.  People buy from people they like.

Another store owner I spoke with that enjoys low employee turnover emphasized that any potential employee must be able to relate and support the core values of the company. These values will vary based on the needs and overall mission statement of the company, but a list of five to ten key points that are central to the core of the organization should be adhered to. Obvious due diligence such as background checks, including criminal history and drug use, can also be helpful as well as references from previous employees. A potential employee at this retailer begins with a screening with the human relations department to make an initial determination if the applicant is a potential fit for the opportunity available. From there the applicant would interview the general manger and finally the department manager. Throughout the process all interviews center around compliance with the core values. Any deviations or doubts from any interviewer can squelch the deal. Since most hires come from referrals from current employees, they already know the organization and already want to work there.

Living by the saying that "if you pay peanuts, you get monkeys", this retailer chooses to pay a generous commission which is adjustable annually due to performance. Store managers also use a weekly checklist for each employee designed to make sure that the salesperson is focused on doing the right thing and offering superb customer service. A perfect score for a month ends will earn the employee a bonus in addition to other incentives and spiffs that may be offered at management discretion.

Most retailers agree that any deviations from what historically is proven to work is probably not going to end well. Don’t shortcut the interview process, don’t make any quick decisions and pass if there are any doubts. There are no guarantees but decent pay, including the potential for incentives and bonuses coupled with an enjoyable work environment and good chemistry with your fellow associates goes a long way toward finding and keeping good employees.

Sharing The Pie With On-line Retailers

Read this if you struggle to compete against on-line retailers or even vendors.

The largest shopping center in the world exists mere inches away from your customer’s fingertips. Though online purchases account for a growing percentage of retail sales, “about 80% of consumers still want to browse and shop in-store” according to The Wall Street Journal(WSJ) in a piece datelined December 30, 2016. While the number of folks who have never purchased anything on line has dwindled over the past five years, Kantar Retail ShopperScape reports that “roughly 22 million households didn’t use [Amazon] in 2016”. Research has also found that online purchases have a return rate of nearly triple the in-store purchase return rate. All that said, the upside potential for brick-and-mortar shopping is pretty bright so long as you keep in mind what you are dealing with.

My Italian friends often say, “Keep your friends close and your enemies closer”. That advice couldn’t be more true when dealing with online retail. Let’s explore some of the many things that can be done to compete effectively with online sellers.

Perhaps two of the more compelling reasons to shop in-store vs. online is 1) the in-store experience and 2) the personal interaction. Let’s deal with the in-store experience first.

Gone are the days of simply putting goods on display, unlocking the front door and ringing up annual increases. If this is your current merchandising and marketing strategy you are undoubtedly going to have a difficult time thriving — and perhaps not even surviving — in today’s fast-paced retail world. Customers today demand an experience. This can be everything from tastings for a wine shop or trunk shows for an apparel or shoe retailer, to product demonstrations and clinics for an outdoor or sporting goods operation. Authors can speak at book stores; artisans might discuss their work at gift shops. The point is that whatever you are selling, it is imperative to create excitement for your product and a connection with your customers through the in-store shopping experience. Remember, the “sizzle7quot; is just as important as the steak-everyone has steak!

Next, let’s review the personal interaction with another human does. It doesn’t — and can’t — happen on line. People buy from people they like. Keep that in mind when you are interviewing sales associates. Do you like them? Are they friendly and outgoing? Are they effective communicators? Do NOT put someone on the selling floor simply to have a warm body there. It’s simply too expensive these days.

The more sensory the experience, the more spontaneous the buying. Don’t believe me? Walk through a Costco store on a Saturday and see how many product samplings you are offered. Even the most disciplined shopper among us has fallen prey to this marketing tactic. Some gift and home stores I am familiar with burn scented candles in the store. This hands-on approach of seeing, touching, tasting, smelling, even trying a product gives the brick-and-mortar retailer a huge advantage over the online competitor. Car dealers are masters at promoting not only through the senses, but also by using emotional appeals. The experience begins with your visual attraction to the sleek lines, then on to the new-car smell. The next level is how you feel sitting in the driver’s seat. Then finally the test drive with the salesperson’s appeal that “you deserve this car” or “this baby could be sitting in your garage tonight”. Once you have succumbed to the power of this sensory and emotional maneuvering, you’re an owner. All that’s left to do is the paperwork.

That example, translated from car buying, suggests that you become the local expert in your industry. I work with an outdoor store whose motto is “Ask Us-We’ve Been There”. Whether camping, hiking, boating, climbing, or back-packing, this store hires local experts who relate to what the customer is going to be using the product for. Think about it: Would you rather buy a pair of running shoes from someone who hasn’t run a mile in their life, or from someone who goes for a daily run before or after work?

When it comes to pricing, brick-and mortar retailers should know the online prices for the products and/or services you are selling. Unfortunately, these days, this includes shopping not only other online retail sites, but also many vendor sites, since they often sell directly to your customers. You must at least consider offering on-the-spot price matching whenever possible, and free shipping when it is economically feasible.

The idea that all shoppers will justify paying more to support a local retail establishment is indeed a noble intent. However, I don’t believe it is sustainable over the long term. About 80% of adults today have either a smartphone or some sort of access to the internet. Today’s shopper knows what the prices are going to be and probably has done some homework prior to even coming in your store. When you can, post current online prices when you can next to certain items. Why not encourage your customers to do online comparisons? They’re going to do it anyway. We all do! This is not a suggestion that you seek out and post the lowest price possible; instead, it is a way to show your customers that your prices are reasonable and include the cost of knowledgeable and expert service, which cannot be provided online.

Traditional retailers also have another advantage over e-commerce only merchants. It is the opportunity to make another sale when merchandise comes back — as it does nearly 30% of the time for online-only retailers. Use this to your advantage; you might even go so far as to stick a $5 coupon in the bag off the next trip to the store, just to counter any perceived inconvenience a customer experiences in making a return.

One more advantage: You can give the customers a —new— experience every time they visit you. Don’t forget to keep the merchandise fresh and exciting. Change the window and in-store displays weekly and rotate current inventory on end caps. Above all else, manage your open-to-buy (OTB) and especially the inventory on-order. You always want to have a constant flow of merchandise landing in the store – new looks and products to excite and delight your customers. Remember: Nobody comes into your store to see what came in last year!