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David Brown

The One Simple Ordering Philosophy That’s Guaranteed to Make Your Store Perform Better

Pretty much everyone in retail knows the importance of reordering fast-sellers, but so few do it well.

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This article is the last of a series on the Five Stages of Profitable Retailing. Follow this retail recipe closely and you will not only buy better, sell better and manage better, but you will retire comfortably.

CONGRATULATIONS! You bought something within budget, that was planned, researched, successfully launched and sold quickly! Now what?

Reorder it!

It’s a funny thing, that no matter how easy you find it to buy new, unproven product, most of you really struggle with the concept of reordering it (and we know because we’ve seen the numbers).

It’s as if you think, “Phew, that piece I bought actually sold. That was lucky … now I’ll take the money from that sale and go and buy something that doesn’t sell …”

Now, I know that is not what you consciously think or do, but it is what happens in the majority of cases. And often it is simply the result of bad habits — yours (not reordering strong sellers), your staff’s (getting bored quickly of anything that’s not sparkly and new), and even your customers’ (their demands for exclusivity).

Pretty much everyone in retail knows that reordering your fast-sellers is fundamental to success, but unfortunately, we see an enormous disconnect between knowing what to do (best practice) and doing it (common practice), which is reflected in jewelers’ very average GMROI of 70 or worse.

My advice to you is to heed the words of one of my first clients, Noel, who once told me “If a fast-seller sold that day, I couldn’t sleep at night until I knew a replacement was on its way back before I left the store.”

As for less-than enthusiastic staff, remember, they get sick of selling it long before your customers get sick of buying it.

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And that customer who gets upset because the ring they bought for $2,500 last week is back in store again? If you told them it was a one-off, then they have every reason to be upset, but there’s a price to pay for ‘exclusivity’ … and $2,500 is not it. For those few customers who do ask you if it’s a one-off, tell them that this is a finished product bought from a manufacturer, so you can’t guarantee they won’t see other people wearing it. Then take the opportunity to sell them an exclusive, custom design piece that you will create just for them … at an appropriate price!

OK, so how fast is fast? This is one of the most common questions we get asked, and the answer is, it depends. It depends on what the item is, what the price point is and how quickly the vendor can replenish it.

As a rule of thumb, you should reorder everything that sells within three months. If something sells in three months it has the potential of a 4.0 times stock-turn, significantly higher than the industry average of 0.7 (meaning it takes 17 months to sell). Net reorder almost everything that sells with six months, regardless of price, but use some discretion around stock-turn. That is, if you need a 3.0 times stock-turn for this product and it takes six months to sell, the best you will achieve is a 2.0 times turn.

For some higher-price-point items, I would still reorder them even if took nearly 12 months to sell. It had a great margin and by being in the store it helped sell other items.

The key is to use your judgment and entrepreneurial skill on an item-by-item basis, remembering that if it sold quickly once, it has an 80 percent chance of selling quickly again, and again.

In short, pay quickly and help make yourself important to your vendors.

  • Keep reordering until your customers stop buying it

  • Keep staff motivated to repeatedly sell proven, popular items.

    Your ‘Exit strategy’

    Before you even buy an item for the first time, ask yourself these three questions:

    • Who am I buying it for?
    • What will I do with it if it doesn’t sell?
    • When does the ‘Exit Strategy’ kick in for this item?

    Yes, I am suggesting you determine the time it should take to sell each item before you buy it. If you get that niggling doubt when you ask yourself this question, maybe you’re already not convinced it will sell … (just like the 65 percent plus of aged inventory you still own).

    When is old, old?

    One of the interesting findings from the data we obtain from hundreds of stores is that a new or reordered item has the best chance of selling within the first 39 days. (Don’t ask me why 39.)

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    Likewise, the likelihood of it selling quickly after 39 days goes down dramatically.

    One of the reasons for this phenomenon is that your staff stop showing it. When it was new, they showed it enthusiastically to anyone who would listen, but after 39 days without success, they lose confidence in it and start showing the item that has just arrived. (You know this happens because invariably a new salesperson will sell a bunch of old stock because … they didn’t know it was old! And nor do your customers.)

    To help you get in the right mindset to move goods that haven’t sold quickly, let’s examine the cost of ignoring it.

    Most industry experts agree that if you still own an item 12 months after you bought it, it has cost you an additional 20 percent. So that $1,000 item now owes you $1,200. Why?

    • You have to insure it.
    • You have to promote it.
    • You have to pay staff to clean it and take it in and out of your displays every day.
    • >

    • You have to put a roof over its head (rent).
    • You have to pay tax on it … yes, even if it doesn’t sell.
    • You have to finance it … if you have any loans, your aged inventory is costing you, and even if you don’t have debt, you could be earning interest on that money.

    But it gets worse. If that $1,000 had been invested in stock that sold quickly at a margin, it would have earned you $1,000 of profit (a 100 percent return/GMROI).

    So now that 1-year-old $1,000 item owes you $2,200 … and it compounds with each passing year! Worse still, the item is now worth, at best, 80 percent of what you paid for it, or $800. How is your “investment” looking now?

    OK, now that we know “why” and “when” to dispose of it, let’s finish with “how.”

    You have several options available, and the earlier you trigger them the better:

    Get into the habit of identifying new items of aged inventory, and revisiting existing ones, at least every week. Then decide on a course of action.

    Your options are:

    1. Remake it using the stones and metal into a known fast-seller or special order.

    2. Return or stock-balance it … but only if those are the terms you have negotiated with the vendor and you have honored your part of the deal, that is trained your staff, reordered all of the items that did sell and paid for them quickly. The benefit of doing this as soon as it shows signs of growing old is that it will still be a current model for the vendor so they can on-sell it.

    3. Sell it:

    • Clean it, re-ticket and re-price it to today’s realistic selling price.
    • Make sure it looks new and then treat it as new, meaning enthusiastically show it to customers.
    • Provide a spiff incentive to your staff before discounting it to your customers.
    • Agree on discount terms with your team and incentivize them for selling it at a lower discount than the agreed discount. I would rather incentivize your staff rather than your customers, because your customers will come to expect a discount the next time.
    • Run a sale or promotion after exhausting all other options. Guard your reputation by not becoming a ‘discount’ store but also guard your image — no one wants to go into a store full of old merchandise.

    4. Scrap it.

    5. Donate it and write it off to “advertising.”

    IMPORTANT: Keeping it and ignoring it is NOT an option.

    Constantly engage your team on the benefits of doing this.

    • Delegate the process where possible and consider appointing an “Aged Inventory Champion.”
    • Make pragmatic, financial decisions not financial ones. You made a mistake, get over it. Don’t make another one by ignoring it.

David Brown is the President of The Edge Retail Academy (sister company of The Edge), who provide expert consulting services to help with all facets of your business including inventory management, staffing, sales techniques, financial growth and retirement planning...All custom-tailored to your store’s needs. By utilizing the power of The Edge, we analyze major Key Performance Indicators that point to your store’s current challenges and future opportunities. Edge Pulse is the ideal add-on to the Edge, to better understand critical sales and inventory data to improve business profitability. It benchmarks your store against 1100+ other Edge Users and ensures you stay on top of market trends. 877-569-8657, Ext. 001 or [email protected] or www.EdgeRetailAcademy.com

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