As you transition from the fall/winter season to spring/summer here are three tips to maximize your ability to generate revenue, maintain margins and reduce unsold merchandise on the shelves.
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1. HAVE AN OPEN-TO-BUY (OTB) IN PLACE
Product-based businesses selling merchandise to generate their revenue spend between 50%-70% of every dollar generated on inventory. Developing an OpenToBuy purchasing plan by creating a base inventory will provide a monthly budget for you to purchase goods and ensure you don't overbuy or underbuy which causes the same issue: Reduced cash flow and lower profits.
The base inventory is determined by the projected sales, cost of goods sold % and annual inventory turns for the store and are integral to being a successful retailer. If you're able to follow the plan you will have less unsold goods on the shelves, increase your cash flow and generate higher profits.
2. MANAGING KEY PRODUCT CATEGORIES
An essential part of the OTB plan is to identify and manage your key product categories generating the MOST revenue. This is based on the % of sales from each category of the overall sales and related Cost of Goods Sold (COGS) related to these sales. Creating an OpenToBuy for each category will ensure you maximize your inventory investment by having the proper amount in each area based on their % of overall sales.
Traditionally, 6-8 product categories generate 75%-85% or more of a store's revenue and are the areas needing to be managed. Everything else is Miscellaneous. You DO NOT need to follow every category in the store but only the one's totalling 75%-85% of the sales. When you are able to do this you will increase sales revenue by having ample product in key product categories and reduce non-selling inventory, thus increasing gross profit margins and cash flow by having less to place on sale to move.
3. MOVE SEASONAL & NON-SELLING MERCHANDISE
As you come to the end of one season and enter the next, it's important to begin the process of moving these goods by placing them on sale to encourage customers to purchase and get off your shelves. This is done by reducing the price to entice customers to buy and ensure you do not have "old" merchandise as you enter a new season. Keeping "old" goods reduces your OpenToBuy purchasing power since it's dependent on a base inventory level that will be higher if product is not moved and allows you to purchase less "new" inventory for the upcoming season. Lastly, selling products at a lower price allows you to use the funds for new goods that you will be able to sell at the full retail price, thus increasing your cash flow and profitability.
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Larry Hebert, our Creator and Co-Founder has helped hundreds of retailers both keep their doors open & scale their operation to great success...this is where he drops his knowledge gems and gold nuggets so you can thrive!