Tuesday, January 8, 2013

If Cash is King, then Inventory is your Queen

Cash is King for any retail business, right?  Don't have enough and you can't fund your business properly. Have excess and we have to decide how much to re-invest to take the business to the next level. So if Cash is our King, then surely, you know who the Queen is, don't you? Your Inventory, of course.
The Queen is often shiny and regal, but sometimes, she can be wicked and betray you and your business if you don't pay attention to her.

If you're like many retailers, managing inventory is one of the biggest challenges you face. With all the other expectations placed upon you to manage your business, sometimes you forget to pay the most attention to the area that can have the biggest affect on your bottom line. Your inventory levels. Too Much. Too Little. Old Inventory. Unsold Inventory.

While many of you reading this have been in business a long time and are quite knowledgeable about what sells when in your store, making sure you have just the right amount of inventory can help you improve your overall sell thru and profitability on a consistent basis.

We suggest using an OTB program to help you track selling by department on a regular basis and to alert you to shifts in business - very quickly. Reacting or proactively pursuing these shifts can and will save you money and help you drive more sales and profits to the bottom line for your business.  

Whether you buy more merchandise because you react to a positive shift in sales, or react to slower sales by canceling or shifting dates on purchases, you can help your business drive more profitable sales in trending categories while reducing the inventory you spend on departments that are no longer selling by using the discipline of an Open to buy plan to manage your inventory.  

If it's all about the King - as in cash, then the next question you should ask is how much money can you expect to save if you use an OTB program? The typical results you should expect from running an Open To Buy will be an improved inventory turnover between 7-10% the first year and a reduction in purchases of between 5-10% for the the first year. These two things alone can pay for the cost of managing an OTB program and so much more.

And while there are tremendous benefits to using an open to buy program, it is not a silver bullet that fixes all that ails your store. You will need to spend time working on and with your open to buy to make it truly successful. You must not be ambivalent about your Open To Buy.  

For an Open To Buy plan to fully to succeed, you must be committed to following the plan you set in place and have the discipline to stick to the plan in the course of the year. The results will happen if you stick to the plan!

Need more reasons to bring an OTB plan into your business. Contact CBCG today.

Are you carrying too much retail inventory?

How much inventory does your business need to run effectively to make your sales plan and deliver the appropriate level of profit to the bottom line?        
This question one of the most difficult for retailers to answer- yet the one that holds the most value to the health and well-being of the business. Why not make 2013 the year you get a handle on your inventory once and for all- and stop spending money you don’t have to in order to deliver the sales you want.

Having too much inventory (or the wrong type) during certain periods can slow your cash flow and can reduce your overall profits (by taking too many markdowns in order to liquidate slow moving merchandise.  On the other hand if you don’t buy enough of the right merchandise (that is, the merchandise that your customers really want to buy) you will miss sales opportunities and thus not make the maximum potential profits from your business. One thing can help you get started- an Open to Buy plan.

A retailer can be sure to stock the right amount of the right products at the right time by using a well-planned as well as a continually updated and well executed Open to buy. (OTB)

OTB can be calculated in units or dollars. (Though our recommendation is to do it in dollars so that you can use the tool when going to market and working with your vendors on a daily basis) The calculations are relatively simple. An OTB is essentially the difference between how much inventory is needed and how much is actually available to be sold at any given time during the selling cycle. (OTB’s are most always calculated on a monthly basis then totaled to quarters, seasons and then finally a year total for the business.) This includes inventory on hand, in transit and any outstanding orders.

While the OTB to buy will tell you how much to spend, the key to managing it effectively is to account for trends- both up and down in a given time period and leaving yourself the flexibility to adjust purchase dollars when and if necessary. To do so, it will be best if you plan to hold a percentage of purchases back in order to take advantage of special buys or to add new products. This will also allow you to react to fast-selling items and quickly restock shelves that your store needs to keep sales moving forward.

You should set up your OTB plan with no more than 10-15 classifications that will roll up to total for your business. (We have managed OTB plans for multi-store national chains doing more than $100 million dollars with less than 10 OTB categories- so we know you can plan your business this way to!) Use the annual retail sales as a guide to setting up your OTB classifications/departments – this will help you reduce the number of classifications you need to plan.

In short, there are many ways to manage an OTB plan. The plan can be maintained on paper, in a spreadsheet or by purchasing one of the several retail software packages available that contain Open-To-Buy programs but the key is to start. Your inventory is the biggest expense you have in your business and managing it on a consistent basis can insure that your business is spending on the right products all the time.
If you need/want more help about how to manage your inventory, contact CBCG today. We can create and manage an annual OTB plan for your business to make sure that 2013 is a year of profit and prosperity.