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Our Feature Article…By Way of Introduction…
Management One prides itself on the quality of our retail experts, who partner with independent retailers on merchandise planning and reaching their next level of success. One such consultant, Ritchie Sayner, has taken his consulting to the next level and is a published author on a wealth of retail topics. Here, we feature his thoughts and advice on a fresh topic, based on details in data, that you can apply to your own business to spark its growth. Enjoy!
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Marc Weiss
CEO and President
Management One™
And Retail ORBIT®
 
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                                                                                           By Ritchie Sayner
One of the athletic trainers at the gym where I work out is fond of stating that “you can’t out-exercise your fork.” Simply put, you can work out all day long, but if you are unwilling to change your eating habits and consume fewer calories than you burn off, you are simply not going to lose weight.
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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 double digit sales increases in one or two classifications, only to end up buying more inventory than the increase justifies. If sales are trending up -  let’s say 10% - and you are not missing business by being understocked, what is the justification to buy 20% more inventory? Yet, this is what I see happen often. 
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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 can also increase.
This can become especially dangerous in stores that only look at past sales volume when planning next year’s or next season’s sales forecast. For reasons that escape me, the stores in this group always plan for unattainable sales increases which typically leads to more inventory, 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 very fond of on the Management One merchandise plan is known simply as “freshness”. What freshness measures is the amount of inflow (receiving @retail) each month for the past 30-60-90 days as a percentage of total retail inventory in the classification, department or store.


What I have observed by focusing on this important metric is that, the higher the freshness factor is, the better 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% 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!
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Another way to look at freshness is by equating it to turnover. Having a consistent 90-day freshness of 100% 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 successful retailers are successful is that they are willing to do what less successful retailers are unwilling to do. 
 

Try focusing on the “freshness” in each classification and see how quickly unsuccessful categories become successful.
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CHARTING PROFITABLE TRENDS
March 2018 through March 2019

The graph below represents monthly sales increases, year to date, based on our clients who have comparable data from last year’s sales as Management One clients.
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