Summer 2019 – Inside Outdoor Magazine

Inside Outdoor | SUMMER 2019 20 O ne of the athletic train- ers at the gym where I work out is fond of say- ing “You can’t out-exer- cise your fork.” Simply put, you can workout all day long, but if you are unwilling to change your eat- ing habits and consume fewer calories than you burn off, you are simply not going to lose weight. I find this analogous to the retail business in that you cannot buy your way out of a problem. Sure, you might increase your sales volume a bit, but if you are not improving GMROI, what is the point? I see several examples every month from stores that are getting dou- ble-digit sales increases in one or two classifications only to end up buying more inventory than the increase justi- fies. If sales are trending up, let’s say 10 percent, and you are not missing business by being understocked, what is the justification to buy 20 percent more inventory? Yet this is what I see happen often. Just as it is not advisable to chase the price of a stock that is going up, chasing a hot item or trend too aggres- sively can have just as bad an outcome: lost revenue. What typically happens in this scenario is that when the average inventory builds at a rate faster than sales, the turnover slows, the margins might suffer if excessive markdowns are needed to clear remaining stock and, believe it or not, the operating expenses also can increase. This can become especially dangerous in stores that only look at past sales volume when planning next year’s or next sea- son’s sales forecast. For reasons that escape me, the stores in this group always plan for unattainable sales increases, which typically leads to more inven- tory even if that level of inventory is unjustified. This is referred to as the “non-profit cycle,” and it is very difficult to break if the merchandise planning is not approached properly. One of the tools that I am most fond of on the Manage- mentOne merchandise plan, is known simply as “freshness.” What freshness measures is the amount of inflow (receiving at re- tail) each month for the past 30-60-90 days as a percent- age of total retail inventory in the classification, department or store. What I have observed by focus- ing on this important metric is that the higher the freshness factor is, the bet- ter chance the store has of profitable sales increases, faster turnover and, by extension, improved cash flow. To the contrary, when the freshness is consistently low, say below 50 percent for 90 days, we often find shrinking sales and stocks that are bloated with old goods. In this example, half the merchandise is over three months old. In a fashion operation, this poses a real problem. I doubt many of you have customers that come in asking to see what came in last season or last year. Today’s shoppers demand a constant flow of fresh, new merchandise, as well they should. Another way to look at freshness is by equating it to turnover. Having a con- sistent 90-day freshness of 100 percent or greater every month would insure a minimum stock turn of four times. This would be a reasonable benchmark for most fashion merchants. One of the many reasons that suc- cessful retailers are successful is that they are willing to do what less-success- ful retailers are unwilling to do. Try fo- cusing on the freshness in each classifi- cation and see how quickly unsuccessful categories become successful. m Ritchie Sayner is the founder of Advanced Retail Strategies, LLC, an affiliate of Man- agement-One, a merchandise plan- ning company that incorporates machine learning into its process. His book “Retail Revela- tions: Strategies for Improving Sales, Margins, and Turnover” is available on Amazon. He can be reached through the website www.advance- Buyer’s Side By Ritchie Sayner Keep It Fresh Avoid the pitfalls of ‘chasing inventory’