Staying in the Driver’s Seat

Bill McCurry

It’s said, “No battle plan survives the first shot fired.” Despite careful planning, something will mess up your inventory. You must respond quickly, forcefully and with discipline. You must make a new plan reflecting the new reality.

“If you wait until it looks like the winter weather will break, it’s too late to set your store.” Bruce Carrozzi is Senior Director Growth for the TrueValue Company, which includes the Home & Garden Showplace. “When you’re late getting ready for the season, you’re moving bags around when you should be adding on merchandise to fill customers’ baskets.”

If you’re out of stock on a key item—a “never-out-of-this” item—you have a simple challenge to overcome. You either under-bought or over-sold. If it’s a “must-have” item, your only option is to replace it.

Bruce says many times they can match needy retailers in one region with growers who have the product in another. Often it’ll cost more than you planned. Mike Berns (www.BernsGardenCenter.com) believes critical “never-out” types of product likely have price sensitivity. Mike eats the higher costs, not wanting to create a highly visible price issue with his customers.

Prior Green Profit articles on inventory topics have discussed “Open To Buy” or OTB systems. I’m a true fan of those with one addition—the most critical aspect is OTP or “Open To Pay.” In some prior articles (see Corey Bordine’s brilliant piece in Green Profit, April 2016, on page 40) it appears you can mark down and close out product to make room in your Open To Buy for new products. That’s theoretically correct. The crisis arises when that action doesn’t generate the cash to pay for the new inventory and your piggy bank is empty.

The death spiral starts when you have inadequate saleable inventory to keep the business afloat. It’s very hard to work your way out of that position, so it’s best to avoid it altogether.

Learn to Let Go
Watch your slower sellers every day during your prime season. If you’re selling below-plan, immediately initiate a process to get back to planned sales. If you have a loser, the first markdown is the cheapest. Make your losers go away now. Bruce told us, “Holding pansies at full price until October isn’t realistic.”

Mike wants his retail stores looking sparkly; only the best products go on display. Marginal product or oversupplies go in his Tuesday/Wednesday first-come-first-serve parking lot clearances. On Mondays, Mike walks through the growing range and judges next week’s challenges. They move to the parking lot for Tuesday. It may be a product that isn’t selling well. Perhaps Mike’s got a crop coming in next week that looks better than this week’s crop, so he clears space for its arrival.

Flag in your notes how/why you went off-plan with this product so you won’t repeat the error next year. Don’t automatically assume you “overbought;” possibly you under-sold. Your competition may have promoted, displayed or otherwise created interest in the product. Don’t blame weather for your missed projections. Weather might affect every category in the store, but when specific categories or products leap out as big fails then weather likely isn’t the culprit.

Here’s how to turn your slow-moving inventory into cash: Will Heeman (www.heemans.ca) says, “Use social media to wax poetic about the product and tell the customer why we bought or grew it.” Always explain how the item will enhance their lives. Heeman’s is so skilled in social media that Will doesn’t feature an item unless they have 100 on hand to meet average response.

Mums the Word
Scarcity and exclusivity can boost demand. While promoting the product to your email/social media lists, offer a “quiet special.” Tell your customers if they buy one and “whisper the secret word” to your cashier, they can buy another for a penny.

Put quantity limits on markdowns. If you say, “Limit 3” you’ll find more people buying three because you’ve told them it’s a great deal. Some will ask for more! Perhaps accommodate them by ringing two different sales for three each. Keep the mystique of rationing so you can share this great deal with all of your good customers and never imply you’re liquidating losers.

If you must cut prices, do it in a way to generate the most dollars with the least animosity. Selling an item today for $5 that you sold yesterday for $10 creates tension with yesterday’s shopper. Instead a “buy one, get one for a penny” or “buy one, get one free” or “two for $10” keeps the price emotionally at $10 while doubling the revenue. Mike believes, “Customers who plant more are happier. Make it easy and guiltless for them to buy multiples. They get a better garden and you get a better cash position.”

Join a buying group. Potentially, you’ll share your problem with others. You may be overstocked on something someone else needs. Even if you liquidate it below your desired price, you’re rid of your problem.

Be realistic when looking at slow/dead inventory. Remember, non-selling inventory isn’t worth what you think it’s worth. It also shows you haven’t reflected the value erosion in your financial statements. Refusing to mark down the product doesn’t make it worth more. Take the markdown. Get it out of your way. Putting it into storage for the next clearance event is never a good solution. Your regular customers are tired of seeing the same old stuff. Decide now to be aggressive when clearing out merchandise. Plan your marketplace buys so you can have sale items.

Successful management is about being in control, so when you miss your projections take immediate action. Mike summed it up: “You can focus all your energy on clearance items—or focus on your best products at full margin.” If you have some weak inventory, don’t clutter your store or your mind with them. Turn them to cash and focus your displays and teams on great products you’re selling at full price. GP

Bill McCurry (aside from being a long-time Green Profit columnist) is owner of an industry consultant firm McCurry & Associates. He can be reached at wmccurry@mccurryassoc.com or (609) 688-1169.