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Planning sales for a new season
Planned sales mean fewer markdowns
Fall is in the air and college football is going strong. What it means to this industry is that we should be in full swing of ordering inventory for the 2012 season. An old adage from the industry is that you make some of your profit by selling and another part by buying.
Putting those two together, it would make sense that we make the most money by buying according to what we plan on selling. Consider this idea as compared to the opposite theory; having the sales representative from the manufacturer or wholesaler show you a report that indicates how much you purchased from them last year and then guess how much more you should buy for next year based upon what you bought last year.
While this is a prevalent and widely used practice for our industry, today we will look at a different concept of how to order merchandise; one that should lead to increased profits – even if you do not have a sales increase.
We will start the exercise with taking a single category of inventory as an example. Perhaps you have departmentalized your business. Fertilizers would be a likely department. Within that department you have multiple sub-groupings which will be called categories or finelines.
We continue this exercise by selecting the category that could be the large bags (40 pounds and larger) of fertilizers. While we will use our sales history of the last couple of years as a basis, we will calculate an estimate of sales for the 2012 spring selling season. In our example, that dollar amount is $20,000.
Our second step is to look at the maintained gross margin for this category over the last couple of years and make a determination of our anticipated maintained gross margin for spring 2012. Note the use of the phrase maintained gross margin which is different than initial gross margin or simply gross margin.
Perhaps the gross margin on this category is 42% as you initially order this inventory. During the season your business will likely have sales events on this category which means your maintained gross margin is going to be something less than 45%. In our example, the maintained gross margin was 42% over the course of spring 2011.
For spring 2012, we are going to estimated the maintained gross margin to be only 40% because of anticipated competition. The 40% maintained gross margin means our cost inventory is expected to be 60%. When you multiply the $20,000 in anticipated sales by the 60%, the resulting answer of $12,000 is the amount of inventory you will need to produce the sales for spring 2012.
The second step in this process is to determine how you are going to spend the $12,000. A likely second step is the decision of what percentage of sales each of your fertilizer vendors will produce. Continuing our example, vendor #1 is going to produce 40% of sales, vendor #2 will produce 30% of sales, and vendor #3 will produce 10% of sales.
These numbers mean we will spend $4,800 with vendor #1, $3,600 with vendor #2, and $1,200 with vendor #3.You note this total leaves you some $2,400 that you have not yet spent. This under spending is intentional. As you attended trade shows and had wholesalers call on you, there is a strong possibility you will find a new line of fertilizers you want to add to the mix. If you had already spent 100% of the budget there would be no money available for adding the new line.
The same is true for your plans to have a big spring opening of your garden center. We have held some of these unspent dollars so that in working with vendors you can outline your advertising plans with the offer of spending some of these remaining dollars with the vendor that is able to produce some merchandise at special prices that you can include in your advertising.
Experience has shown that when a retailer approaches a vendor with a plan for a special event, and dollars allocated for advertising the event, these vendors are often able to secure special prices on items. The idea behind this is that the retailer should not be the one that is taking all of the markdown when there is a specially priced item in the advertisement. A part of the markdown should be covered by the vendor, whether it be in a special price, giveaways for contests, advertising dollars, or a combination of the three.
Having made a determination of a total of how much you are going to spend, and how much you are going to spend with each vendor, you are now prepared to place your seasonal orders for this category of fertilizer. A similar exercise should be done for each category of merchandise in your garden center.
Working with the vendor, you will decide which products and the quantities of each you will order in this category. Keep in mind that for this plan to work, you cannot over spend your budgeted amount. Overspending means that you are going to have to decrease spending in another aspect of this category if the budget is to remain intact.
As you total all of the orders in the various categories you purchase from any vendor, you should then look at the total dollar amount to be spent with the vendor and compare it to any incentives or order requirements the vendor has.
Some vendors increase the discounts they offer as the amount of the order increases. Before placing the order you should see where your order stands with regard to these potential discounts. Shifting even a few dollars from one vendor to another can allow you to improve your margin because of the dollar amount you have spent.
A second concern is your looking at the minimum order requirements for each vendor as well as the requirements for vendors that offer free or discounted shipping based upon order quantities. Getting free or discounted shipping is the same as order incentives when it comes to increasing your margin on the order.
Lastly, as no buyer can ever predict exactly what their business is going to need for the coming season, you should consider placing the orders in pieces as compared to one large order.
As an example, if a vendor has a minimum order of $2,000 and your planned order is $8,000, it does not make sense to place the one $8,000 order. Instead, you should consider placing four orders of $2,000 each with four different delivery dates.
Ordering some of everything you need in each of the four orders, you are likely going to find products that sell better than you anticipated as well as products that do not sell as well as you thought they would. Finding this out after the first order has been received, could afford you the opportunity to make changes to the second through fourth orders.
Put these components together and you will have done a very thorough job of making the best plans for your garden center for 2012. You will have places orders appropriate to your anticipated sales and margins, and you will have the orders written with the appropriate vendors. You will also be prepared for those new lines you found as well as having the best margins possible during your advertising efforts. Definitely, you are going to make spring 2012 a great selling season for your business.
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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.|
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