by David Brown
Purchasing stock is an ongoing task; However, the question most store owners don’t ask themselves is whether they are ready to buy. It’s worth brushing up on buying basics.
Whether dealing with sales representatives in-store or attending jewelry trade shows, the process of buying stock is ongoing. There are store owners who have a good handle on what they need when purchasing but there are plenty who don’t. In fact, retailers might find they are not well-informed enough to make strategic buying decisions when the time comes. So, are you prepared to buy?
Retailers are always prepared to buy new items – a look at their increasing product levels readily confirms that – but what it really means to be prepared to buy is whether retailers have done enough groundwork before heading to buying group meetings and trade fairs.
As a starting point, look at your stock reports for the last six to 12 months. Has your product holding increased? Do you have more stock now than at the beginning and if so, was it planned and have sales increased as a result? If not, this is a sign that cash flow could shortly become an issue. If you are holding more product – and you’ve paid for it and not achieved increased sales – then that also means a corresponding reduction in available cash or an increase in debt. This can only be sustained for a short period of time.
If stock levels are higher (than your optimum stock level) then you need to address how you will fund any new purchases. Do you have the money to do it or will you need to reduce your current levels of product to provide the cash for new product? If not, then you probably don’t need to buy. In fact, your cash flow may have already told you that. Unfortunately, when completing this exercise, most storeowners have a higher level of stock than they did six to 12 months earlier. Few have less.
In the majority of cases, this is not natural growth but an oversupply of product that hasn’t moved, which is jamming up the works and preventing a business from growing. If you don’t control the old product, it will soon choke the new like weeds in a garden.
PREPARE THE RIGHT WAY
In preparation for buying group meetings and/or trade shows, retailers need, at the very least, a buying plan and budget that matches their sales plan. By all means, research new product lines and suppliers, but if you buy product that wasn’t included in your original buying plan you will need to increase your sales plan accordingly. For example, if you invest $20,000 in a new entrepreneurial line that isn’t part of your existing sales budget, then you need to increase your sales budget by say $50,000 ($20,000 x 1.2 stock-turn = $24,000 x 110 per cent mark- up = $50,400) to include it. Either way, the buying plan needs to match the sales plan or the sales plan needs to match the buying plan.
Print out a supplier report by gross profit for the last 12 months. Are there any suppliers on the first page that have a closing inventory that is level with or greater than their sales? That’s a problem to address urgently. If they are on the first page of the report then they are amongst the better performers so there is an opportunity to discuss ‘stock balancing’ – replacing fast-selling items and returning for credit current models that haven’t sold. Retailers should focus on the top 10 to 12 lines for reasons that will be later explained.
Are there any suppliers that have similar closing stock levels but significantly different sales? Look at this example: Supplier One has sales from you of $85,038 with a closing stock of $13,049, while Supplier Two has sales from you of $20,836 with closing stock of $13,017.
Why is there such a huge variance in performance? Isn’t this something to discuss with both of them? Supplier One has a stock- turn of 2.4, which is great (and no, they are not a bead supplier)
With this in mind, should retailers broaden their Supplier One range a little? Should you re-order twice weekly rather than once a week? Does Supplier One consistently have a high-order fulfilment percentage? This occurs when most of the orders are completely filled. Is there anything still on backorder? Why?
Supplier Two has a stock-turn of 0.6 and much of their stock is on consignment and unpaid. Being on consignment is not an excuse; customers don’t know that and knowing it wouldn’t influence them to buy more anyway. That product that hasn’t worked – for you or them – needs to be exchanged as it isn’t doing either of you any good.
Retailers don’t need to analyze this for all suppliers. Focus on the top 10 as these suppliers are probably providing you with 80 per cent of your store sales anyway. Your report may contain three or four pages, but the majority of information is in the top few lines and this is where your attention needs to be.
This comparison of where product is sourced is a very useful exercise. Naturally, suppliers whose products sell well at a good margin are the ones you should reorder from, while those whose product doesn’t sell well should be paired back.
The 80/20 rule is alive and well, when it comes to stock purchasing. Jewelers need to concentrate their efforts with those suppliers that provide them with the bulk of their sales. The idea is to become more and more important to fewer and fewer suppliers.
By being suitably armed with correct information that supports the sales plan, retailers can ensure they are in the best position to make those choices.
If you would like more information on how we can help you buy better, for more success, please contact Becka Johnson Kibby, 714-925-2456 or Becka@EdgeRetailAcademy.com