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Philosophy of a Winning Store
An Open Mind on Open to Buy
Many years ago, we had the opportunity to hear a speaker that told a story about a small business. The speaker referred to the business as a "Mom and Pop" store, and spoke kindly of the couple that operated the business.
The couple had started their business many years ago. The several thousand dollars that the business was started with may today be only one purchase order to many businesses, but at that time the money represented an accumulation of all the money that the couple was able to save and borrow.
Over the years that the couple owned the business, the property had appreciated in value. They had expanded the physical plant twice, and the business was now paid for. The couple had raised several children, and with the profits of the business, they put each of their children through college with two of the children going on to graduate studies.
The speaker made a point to say that the couple had, for many years, worked with the various salesmen that called on them each week. With each salesman, they would tour each of the aisles, and with the assistance of the salesman, review the quantity on hand of each and every item that was purchased from that particular vendor.
"Give me one of this, two of this one, four of this one. No, make that three instead of four", and so the weekly tour would occur with each of the salesmen.
The speaker went on to explain that this strategy had worked for many years for this couple as they had achieved all of the goals previously mentioned, and would have quite a nest egg when they would finally decide to sell their store and retire.
The speaker said he personally knew this couple. He remembered the day that the couple was visiting with him and were reviewing the success they had experienced with their store. The speaker remembers hearing them say, "Now that we have some extra money, we can buy like the big boys and purchase our inventory by the case instead of on a 'onesie' basis".
The question that the speaker asked of the couple was, "If this strategy worked for so many years, why do you want to change now?"
It would be impossible to find a strategy that would work for every retailer. And in today's market it is improbable that a retailer could create a one strategy that would work in all areas of his store. So, how does a retailer make the decisions regarding the ordering?
The point in describing this situation is not to discuss the strategies of ordering point systems, or how to utilize cash flow statements. In today's market, the couple had what would appear to be the right idea. It would however, be for the wrong reasons.
Today's consumer is convenience driven. One of the most frequently named concerns by customers has been, 'have plenty on hand of what I want'. Customers are not primarily price driven, as many retailers would think. It just seems that way because that is the only thing big box stores promote through their advertising.
Any customer knows the big box stores are not conveniently around the corner. You can't park your car close to the front door, and as you find your desired product and head for the cash register, the customer is probably standing in line behind more people then there are shopping at any time in the neighborhood hardware store.
But it is so frustrating to the customer to come into your store, find the item that he wants, and then see that you only have two when he needs four. The same ideas apply to the groups of products that you sell which can be considered to be projects. Examples of this would be the various products used in outdoor weather resistant electrical work, or the many brass and copper pipe fittings.
Anticipating that the average retailer does not have a quarter of a million dollars sitting in the checking account, and is not inclined to go to his banker to borrow this amount, making these changes must be made with great consideration and over a period of time. Perhaps a review of departments, and even reviewing inventory on an item by item basis is necessary. For just as there are items that you need to increase their quantity on hand, there are probably many items for which you should decrease the quantities on hand.
These decreased inventories, or possibly eliminated departments, could be the necessary funding for the increases that your store needs.
One other scenario that you could utilize in making the decision of where to place the new inventory, would be to ask several key team members how they would spend $500 for new or increased inventory. You could also pose this question to the appropriate sales representative that calls on your store.
A final thought; many wholesalers, and the NRHA, have available to retailers, a cost of doing business survey. Two of the figures of most interest would be the inventory on hand per square foot, and sales per square foot. However, before taking these two figures and setting them as goals, make a point to ask several other retailers in the area if they would be willing to share this information with you.
You will probably find a wide range of answers. The important point is that the successful retailers have found the formula that is right for them, and that they have demonstrated an open mind on open to buy.
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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Profits Plus Solutions, Inc.