Buy Plan - Plan your Buying Trips Before you Travel

Many of you may be scheduling your January buying trips now and making sure you are booked into the right hotels and are taking the right staff along. However, the most important thing you need on your trip is what most retailers forget about; their Open-to-Buy and Buy plan.

The Open-to-Buy and Buying plan are integrally related. The basis for your Open-to-Buy should be your last year's performance and your plan for growth, margin improvement, improved stock turns and/or inventory reduction. These factors will all help determine how much and when you should be buying.

The Buy Plan takes the Open-To-Buy a step further. In the Buy Plan you need to incorporate how much of your budget you want to actually spend, how much you want to use for re-orders and how much you want to allocate for opportunity or discounted buys. Most retailers go out and spend their entire open-to-buy budget up front and don't have the funds available to take advantage of hot sellers or special purchase opportunities, usually heavily discounted vendor excess stock.

As a general rule of thumb plan on spending only 75-80% of your buying budget up front. Keep the remaining balance in your back pocket to allow for in-season reorders on fast sellers (10-15% of budget) and the remaining (5-10% of budget)dollars on opportunity buys as they present themselves. These ratios may differ a little from retailer to retailer but the the basic premise is the same.

Remember that it us (almost) always better to chase more product than to be faced with too much inventory and excessive discounting.

Implementing a Shrink Reduction Program - Manager Bonuses

Regarding bonuses based on shrinkage – this is commonly one of the bonus criteria for store managers.

The best way to implement is to set a target shrink factor based on industry average and your own historical store inventory shrink rates. If a store has a very high shrink rate it may be more motivational to base a bonus on a percentage reduction of the shrink rate for the first year or two until it gets to an acceptable level. It is also important to communicate the store shrink rate and targets to all staff. They should know what the last year's shrink rate was as well as the target. All staff should be made aware of the programs designed to reduce shrink and how they can help reach the target shrink goal.

It is amazing how just being aware of the shrink issue and how to prevent it makes the problem go away.

Sources of Retail Inventory Shrink

Before jumping too quickly to try to implement a shrink reduction program it is important to understand what is the source of the inventory shrink.

Although there is some variation depending on the type of retail store, most retailers' inventory shrink rate should be in the neighborhood of 1.5%-2%. Anything over this usually indicates a problem.

The following is the industry average for the source of inventory shrink in the retail industry:

1. Internal Theft 45%


2. Shoplifting 35%


3. Admin/Paperwork Errors 15%


4. Vendor Fraud 5%
   

Internal Theft
Based on the above breakdown, much of the shrink reduction program should emphasize internal controls & processes related to damages and write-offs. Also, cross-store and employee comparison of refunds and unauthorized discounts should be done to ensure that some of the shrink is not happening at the till. Parcel/Bag checks is a bit more extreme but some retailers do implement this.

Shoplifting
Customer Service is the best way to thwart customer theft. Acknowledging and servicing customers can avert many planned thefts. Also, signage indicating shoplifters will be prosecuted and arranging product so that low value items are near the doorway and expensive items are near the cash desk or under lock and key helps reduce easy shoplifting opportunities

Admin/Paperwork Errors
This is the inventory shrink category that you have the most control over. Review current procedures for receiving, transfers, pricing and write-offs to ensure they are being followed and to identify areas for improvement.

Vendor Fraud
This is most common when vendors are used to re-stock items directly in a store – usually this occurs only in larger department stores where vendor managed programs are in place.

Physical Inventory - How Often is Enough?

A number of my clients often ask if they should do a physical inventory more than once a year in order to cut down there shrink. As a general rule, there is usually no payback in doing inventory more than once a year unless need to for financing purposes or for a potential buyer of the business.

The cost of doing inventory usually outweighs the amount of inventory shrink that can be saved. However, it is recommended that monthly cycle counts be done on high volume items. This means selecting a handful of items (3-5) and having the stores do a count on those items only. This information is then used to verify against your perpetual computer inventory. Usually different items are selected each month so that 40-50 items are counted by the end of each year. However, if you have a problem item then you may choose to have that same one counted each and every month.

Store Opening Checklist

Here's a simple checklist that can be used when opening a new store:

NEW STORE SETUP CHECK LIST

Location: ____________ Opening Date: ____________ Contractors: _________

STAFFING/SCHEDULE

Store Opening Team

- Name(s):

- Position(s):

- Contact #'s:

Manager:

- Hired:
- Training Complete:
- Trained By:


Team (total # hired including temp.)
- Hired:
- Training Complete:
- Trained By:

Hiring Forms/Schedules


Opening Week

STORE SETUP - Systems and Operations

1. Banking
2. Phone/Fax
3. Alarm
4. Locks
5. POS
6. Float
7. Fixtures
8. Manuals
9. Marketing
10. Signage
11. Supplies
    

STORE SETUP-Stock

1. Stock
2. Visual
3. Cash Desk
4. Back Office
5. Marketing

CUSTOMER SERVICE

1. Product Knowledge
2. Role Playing
3. POS Training
4. Policy & Procedure
5. Loss Prevention

OPENING DAY

1. Floor walk Through
2. Float
3. POS working
4. Banking working
5. Marketing in place
6. Staffing
7. Cash Desk Stocked

Retail GM& and Stock Turns - Industry Averages

Store Type__________Gross Margin______________Stock Turns
Women's Shoes...............44.2%...............................4.1
Men's Shoes....................44.6% ..............................2.5
Women's Sportswear.........47.3% ..............................6.0
All Women's Apparel..........43.6% ..............................7.1
Luggage........................48.1% ..............................7.3
All Men's Apparel ...............42.3% .............................4.4
Cosmetics & Drug...............38.6% .............................3.9
Sporting Goods..................32.2% ..............................3.7
Furniture ........................43.1% ..............................3.3
Electronics........................20.8% .............................3.5

Technorati Profile

Advertising Expense Ratios

Advertising Expenditures as a % of Sales




retail open to buy

7-Elevens become Simpsons "Kwik-E-Marts"

Over the weekend, 7-Eleven Inc. turned a dozen stores into Kwik-E-Marts, the fictional convenience stores of "The Simpsons" fame, in the latest example of marketers making life imitate art. Now you can get Buzz Cola, KrustyO's and Squishees.

read more | digg story

Inventory Management

The most common question I receive from retailers is "how much inventory should I be carrying?" Having too much or the wrong inventory is most often the root cause of a retail store's failure. I haven't been in a store yet that does not have a challenge managing it's inventory. The key to managing inventory is relating all inventory to sales. That is, inventory on-hand should reflect the expected sales for the current and upcoming month. The best way to do this is using an Open-to-Buy (OTB) system. An OTB system, if used properly can tell you if you are over-bought, under-bought or have the wrong mix of product. There are many OTB tools available to retailers. These can be as simple as a spreadsheet or more complex programs that are integrated with the retail accounting system. Whatever the system used, the key is to understanding and using the information provided. In its simplest form, an OTB system takes into consideration your expected sales and factors in your GM% and markdowns. This will provide you with how much inventory will be moved during the selected period. The system will then subtract this from your beginning inventory and will compare the expected ending inventory with your planned ending inventory. If your expected ending inventory is less than plan then the difference is the amount of purchase dollars available to buy more inventory. On the other hand if your OTB is negative (expected inventory greater than plan) then there are no dollars available to buy more product. In fact action may have to be taken to move more inventory (markdowns, vendor returns etc.) The OTB system becomes more complex and often confusing for retailers because the system is actually a rolling calendar that looks at a number of periods at the same time to provide a forecasted OTB. While the OTB system can be quickly learned, the interpretation of the data can be difficult to master, especially for a new store with little or no history. The first problem in interpretation is determining how much inventory to carry in the first place. Do I need twice or three times as much inventory to make my sales target? There are a few different ways to calculate this but the main one is the stock to sales ratio. Without a sales history this calculation should be based on a standard of between 3 to 1 or 4 to 1. This means that if I plan to have sales of $50K (retail$) in a period then I will require between $150 - $200K (retail$) of inventory on-hand at the beginning of the period. Another way of saying this is that I expect to sell approximately 20-25% of my inventory in the period. These ratios apply to most businesses for most months of the year. Some seasonal retail businesses may have to adjust this for their specific needs. Also, during the peak selling period (usually December) the percentage of product that will sell is much higher than 20-25% so the ratio may have to be reduced based on expected sales.Once you start using an OTB system you can get much more finite in your inventory management by using the OTB at the category or department level. This way the OTB not only tells you whether you have enough stock but also if you have the right mix. You can get a free basic OTB calculator at Tom Shay's Profits Plus website. Here you will find other retail tools as well as good retail information. For personal help in developing an OTB system you can contact me or visit our website. You can also visit my store at website.