Beyond "Survival." It's Time to Thrive!
Today's economy is like quicksand for retailers. If you don't keep moving, it could take you down!
by Patricia M. Johnson, CMC and Richard F. Outcalt, CMC 
There are 3 kinds of store owners:
- Those who make things happen
- Those who watch things happen
- Those who say, "Uhh, what happened?!"
As a retail owner, the responsibility for the prosperity of your business lies with you.
It is your job to make the strategic decisions, in a timely way, to keep your business going. By learning how to look ahead and apply the discipline of good management habits, you can make it through just about anything.
Now is not the time to be on the sidelines, wringing your hands.
Here are five essential and low-cost steps you can take to strengthen your business and increase your chances of weathering economic downturns.
1. Know Whether You Are Over-Inventoried
If you’re like most retailers, you probably have more merchandise on hand than you ought to. Why? Because your actual turnover rate is lower than your targeted rate. Here’s how to quickly evaluate whether you are over-inventoried.
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Determine a target turnover rate for each of your departments
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Divide your target into 52 to get the number of weeks representing “one turn’s worth” of inventory @retail.
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Project each department’s sales for that number of weeks.
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The sum of those sales is the exact amount of inventory (@ retail) you should have on hand to begin that selling period.
For example, let’s say your target turnover rate for Department A is 4.2 turns per year. Fifty-two weeks divided by 4.2 equals 12.4 weeks: “one turn’s worth” of inventory in weeks-of-supply. If your expected sales in Department A will average $1,000 per week for the next 12 1/2 weeks, that means that right now your inventory on hand, at retail, in Department A - in order to reach your targeted turnover goal - should be $12,400.
If you have more inventory, eliminate the fat (but do it responsibly). To bring your inventory into line and increase your cash flow, you must eliminate the excess inventory.
2. Now, Keep Your Inventory in Line
Cut the inflow of merchandise by cutting optional merchandise and classifications on open orders you know the supplier hasn’t yet shipped. Is such a wide range of products really necessary this time of year?
See if you can persuade a supplier to let your return some merchandise you’ve already received. You may not be able to get full credit for the returned goods, but if you’re really hurting you may need to consider this option.
You can also trim excess inventory by speeding up the outflow of merchandise.
- Sell some of your overstocked products to your retailer friend in the next town.
- Pair up old and new merchandise to draw new traffic.
- Also, be sure to take your markdowns just before sales peak, not a little after. If you’ve been a little slow with the markdown pencil, it’s been slowing your turnover and your cash.
- Set up incentive contests.
- Get some local publicity.
- Give goods that are “just not selling” to your favorite charity for a tax deduction—just move that merchandise!
3. Restore your Gross Margin
Gross margin is what’s left of sales after you deduct the cost of the merchandise.
Retailers cannot afford to keep offering “sale” merchandise at reduced gross margins in order to simply prop up their sales volume. Focusing only on “beating last year” can lead to disaster!
4. Cut Your Operating Expenses
Cut your operating expenses to allow for a profit at your current gross margin levels.
It will be tough, but you must bring an objective eye and a sure hand to the task of eliminating “sacred cow” services, certain personnel, “extra” hours, and the like. (Get a second or third objective person from your operation to draw up a list of things that could be cut. It will be an eye-opener.)
5. Redirect your Merchandising
Redirect your merchandising to a market that will sustain future profits.
You say you’ve always directed your merchandising efforts towards attracting young families? You may have always sold to these folks, but are they still buying enough to warrant the kinds of expenses you’re incurring?
Look ahead! Who has the future buying power? What are they interested in? What can you offer to attract or retain their patronage?
Find and aggressively go after your best, most profitable customers, not all shoppers.
Be a Pro-Active Owner
There are three kinds of store owners:
- Those who watch things happen.
- Those who make things happen.
- And, alas, those who say, "Umm, what happened?!"
It’s up to you to decide which one you want to be.
As a retail owner, the responsibility for the prosperity of your business lies with you. It is your job to make the strategic decisions, in a timely way, to keep your business going.
By learning how to look ahead and apply the discipline of good management habits, you can make it through just about anything.
©Copyright, The Retail Owners Institute® and Outcalt & Johnson: Retail Strategists, LLC.