Buying the right stock is the major key to the success of a retail store. However, it is also the area where retailers experience many problems, sometimes unwittingly.
The most common buying problems are as follows:
- Most retailers don’t have a buying plan.
- Most suppliers don’t have a selling plan.
- Debt and the lack of liquidity destroys self-esteem and buying opportunities.
- Too much stock that doesn’t sell is bought and not enough of the fast selling stock is replaced.
Let’s now look at these problems in more depth, as well as providing a few simple, but very effective solutions.
- Most retailers don’t have a buying plan
Retailers think that if they pour all their profits and their credit into stock, they will get all the sales. However, statistics show that 8 out of every 10 people who enter a store, walk out without buying. Of the two that buy, on average, more than 1 spends their money on a repair. These are terrible statistics and if you were to measure it in your store you will be horrified to find out that they are true.
So why do people walk? They walk because you don’t have what they want to buy. The hardest part of a sale is to get people into the store. Unfortunately, so many retailers lose sales through lack of fast selling stock.
Jewelers and their staff buy what they personally like when purchasing stock. This means the store becomes full of personal preference items that are often hard to sell.
The common sense secret to rectifying this problem is to buy what your clients buy! It sounds so simple, but is so often overlooked. To create a buying plan, the right sales and stock information is critical. Reports must be set-up by departments that are meaningful. Not only should they tell you what is selling and in what quantities, they should also tell you what is not selling. You should know the potential return on investment for each department. You should know what mark-ups are being achieved and what should be reached. You should know what average sale you plan to achieve and what average sale is actually achieved.
You should recognize old stock and the drain on your business that it is. Removing old stock from your display cases will show you how little stock you really have. Good reporting shows that if a piece of jewelry doesn’t sell in four months, there is a good chance that it will never sell.
- Most suppliers don’t have a selling plan.
Why is it that most suppliers’ sole plan is to sell you jewelry? Whether it sells and repeats in your store certainly doesn’t have the focus it deserves. When making a sales presentation, suppliers start at the top tray of their samples and move through to the bottom.
Stock that has been sold is re-ordered without a thought of how long it has been in the store. No thought is given to department types of stock e.g. diamond earrings, diamond pendants, watches, etc. No thought is given to whether the department is over stocked, under stocked or the return on the investment the department represents. Whoever heard a supplier ask, “How much do you plan to spend? What do you need to strengthen each department and total sales?” Do they talk about your average retail sale of their stock compared to the average retail sale of your store? What about price points? What about profit? What about the stock that doesn’t sell?
The reason the supplier can’t plan with the retailer is the lack of information on what is happening within the store. The retailer must take responsibility for this. To build a win/win relationship with a supplier, a retailer must have sales information on hand to share with the supplier. Create a buying plan and share it with your suppliers. Take control of the plan and the situation.
- Debt and the lack of liquidity destroy buying opportunities.
Most retailers buy beyond the limit of their credit. This puts a strain on good relationships with their suppliers. Unplanned and out of control debt can destroy a business and a family, where well-planned debt can develop a business and a family at an accelerated pace.
Remember, debt is caused by the lack of profit and the huge amount of stock that doesn’t sell. Create a buying plan and take control of your store’s destiny.
- Too much stock that doesn’t sell is bought and not enough of the fast selling stock is replaced.
Most management teachers teach you that 20% of stock produces 80% of sales. But few tell you how to find the 20% of stock that produces 80% of sales. This 80-20 rule does not apply to stores that have accumulated large holdings of old stock built up through the years.
Most jewelers mistakenly believe that this old stock is a good investment. They organize an annual clearance sale that destroys their profitability and sells off the good stock, leaving the old stock still sitting on the shelves. In these cases about 6% of the stock produces 70% of sales.
When stock is properly controlled, $100,000.00 (cost) of stock should produce $600,000.00 (retail) of sales. $1 million (cost) should produce over $6 million in sales (retail). This is working with 100% mark-up (50%GP) and a 3 times stock turn.