IS IT TOO LATE to think about buying for Christmas?
I know, you’ve just came back from the Vegas, Atlanta and New York shows and now you’re reading an article in September about buying for the season. And you’re saying: “Hey David, I’m done already, I-am-outta-here!”
Well, you still have time to “tweak” things a bit and you can still alter orders if they haven’t arrived yet. Here’s your overall plan:
A. You want to plan ahead with your inventory levels for New Year’s Eve. Yes, New Year’s. Here’s the goal. No excess inventory when the big ball drops.
B. You should strive to have no more inventory than you will have sold all year, at cost at year-end. Even less than that is great, you can just restock in January.
So how do you achieve this? First, find out how much inventory, on average, you keep in-house through the year. Let’s assume you keep $500,000. This number fluctuates, of course, going lower in slow seasons and higher in busy seasons like Christmas.
[inset side=right]Can you send items back to your manufacturers without buying more than you returned?[/inset]Then, take a look at total product sales (at cost) during November and December last year. If you sold, at cost, $100,000 and $200,000 during those two months for a $300,000 total, then assuming no growth (just go with the flow here) that’s how much extra inventory you’ll need above and beyond your normal level. Look at your case purchases as though they were a big bet you just placed at a Las Vegas craps table. You pay for them whether they sell or not. Special orders and memo don’t count. They are a sure sale and you only pay if you sell them. So only look for the sale of merchandise where you “stock the cases and owe the money.”
So your “average inventory” of $500,000 will need to go up to close to $800,000 in order to have enough product to sell during the season and end up on New Year’s Eve with your average inventory of $500,000. In fact you should expect to have less (that’s because you’re such a tiger on the sales floor!). Then, come January, you happily restock.
So, here’s a question. How much in the way of goods do you have coming in during the next few months? Hopefully, it’s not more than the $300,000 (or whatever reasonable sales increase you have projected). Jewelers talk about “stock balancing,” sending back merchandise. Can you send items back to your manufacturers without buying more than you returned? If so, good going. You’re covered. But most vendors require you to buy even more goods before they’ll accept returns on items you haven’t been able to sell.
Here’s a deeper look at stock balancing that should help ensure you have the right inventory in place in each category this holiday season.
Look over some reports of what sold last Christmas by department and price point. Price points might be:
- $0-$99;
- $100-$199;
- $200-$499;
- $500-$799.
Examine one department — let’s say, “Colored Stone Bracelets”. And in that category, you might find this:
| Price Point | Units sold 2003 | Units Still in Stock |
| $0-99 | 20 | 18 |
| $100-199 | 65 | 78 |
| $200-499 | 39 | 18 |
| $500-799 | 24 | 43 |
- In the $0-$99 category, you have enough — you sold 20 and have 18.
- You have too many in the $100-$199.
- The $200-$499 is a hot seller and you’re low. I know, your thought is … gotta order more, now! But stop! Now read on.
- Look at the $500-$799 category. You’re overstocked there too. Rather than discounting these to unload them and buying more in the $200-$499 range (cash flow), here’s a better idea. Retag and reprice some of the $500-$799 to the next lower price points of $200-$499.
It’s the same cash situation of discounting but you haven’t “discounted”. (Ever notice how all those SALE! signs sometimes don’t do a thing?). By repricing a $595 bracelet to $399 or $499 you’ve “received new inventory for the $200-$499” range and haven’t spent any money. Not a dime.
In the $100-$199 range, where you also have too much inventory, I bet you a few pieces might even be moved up to the $200-$499 range. I’ve seen lots of folks have terrible results when they discount an item, only to raise the original price 20% and see the item sell quickly.
Do this exercise in every department. Start moving items up and down to fill price points.
Your whole object is to have the price points customers want to spend, have the merchandise and move out old stuff.
Save cash flow, too? What a plus!
In this way you can buy less, pay for less, keep more money in January 2005 and owe a boat-load less in accounts payables.
Just don’t ask me what to say to the vendor when he asks you why you’ve reduced your orders this year. (But do me one favor … make pretend you don’t know me.)
This story is from the September 2004 edition of INSTORE.