Look for more columns from Ted Hurlbut in our upcoming Retail Resource Center.
Let the craziness begin!
If you're a small retailer, Thanksgiving represents the starting line of a one month sprint to the finish of the holiday selling season. This is make or break time. 'Tis the season to Ring the Register and Fill the Till!
But in the exhausting dash to the end, it's important to keep your sights not just on sales but also on profit margins and cash flow. December is also the time to focus on managing your seasonal markdowns. This includes identifying items and categories that will need to be marked down, quantifying your potential markdown exposure and scheduling your markdowns by item and category to minimize their financial impact.
This is the time to take early markdowns on those seasonal items and/or categories with heavier than anticipated inventory levels. Taking action now rather than later accomplishes several important goals. First, taking these markdowns now will bring heavy inventories into line now when customer traffic is at its heaviest and smaller discounts are necessary than in January and February, when traffic is lighter and customers expect deeper markdowns, thus protecting margins. Second, taking these markdowns now will help to clear floor space that can be used during the last few weeks of the selling season to provide greater focus on the bestselling items. Third, by bringing December ending inventories into line now, the overall volume of inventory requiring markdowns in January and February is lessened, thus preventing deeper than planned markdowns during those months, not just on the unplanned additional inventories but also on the inventory planned to sell during January and February.
The critical point to keep in mind is that when traffic is at its heaviest, as it is in December, smaller markdowns will be required to induce customers to buy than in January and February. Deferring all of your markdowns into those months may allow you to focus your energies on (full priced) sales, but could end up resulting in much heavier, and costlier markdowns later. In those instances, the cash in hand now is greater than the potential cash in hand later.
Here is a step by step approach you can take now to minimize your markdowns, and maximize your cash flow:
Plan January and February sales by item and/or category, assuming a normal level of markdowns. It's critically important to quantify the volume of inventory you can expect to sell during this seasonal markdown period. Use last year's sales as a starting point, adjust for significant stock overages or shortages then, and factor in the current season's sales trend. If you already have a sales plan for January and February, now is the time to update it to reflect current sales trends.
The total January and February sales represents the target December ending inventory, by items and/or category. Your objective during January and February is to clear out any remaining seasonal inventory. (If you are willing to packaway any unsold inventory at the end of February, that inventory needs to be included in your target December ending inventory, although my experience has been that too many small retailers use seasonal packaways as crutch for not carefully planning ending inventory levels. But that's another column?)
Project the actual end of December inventory levels by item and/or category, based on the current inventory levels and sales trend. Factor in any late season purchases you anticipate making, but remember that from this point on any purchases should be focused only on the very best selling items.
Identify those items and/or categories that project to have actual December ending inventories in excess of their target levels. Those items and/or categories with projected December ending inventory in excess of their target levels require immediate markdowns to stimulate sales and bring their December ending inventory into line.
At this time of year, it may seem as though no matter how fast you run it's still not fast enough. There's not enough time to think about tomorrow much less next month. But even in the rush and crush of the season, it's essential to do the end-of-season planning necessary not just to maximize sales but also to protect margins and cash flow. Having a clear understanding of what to mark down, when to mark it down and how much to mark it down is critical to the success of any small retailer at this time of year.
Ted Hurlbut is the Principal of Hurlbut & Associates, a merchandising and inventory management consulting firm based in Medway, Massachusetts. Hurlbut & Associates helps clients increase sales, profitability and cash flow by improving the productivity of their inventory investment.
Ted possesses over 20 years of experience in a variety of merchandising, inventory management, buying, and purchasing roles, in both large corporations and smaller organizations, in retail, wholesale and distribution settings. His wide-ranging experience includes all phases of retail merchandising, unit and financial inventory management, demand forecasting, supply chain management, importing and distribution. He also possesses expertise in the development, implementation and optimization of merchandising and inventory systems, metrics and processes.
Ted holds both a Master of Business Administration and a Bachelor of Science in Business Administration from Babson College in Wellesley, Massachusetts, and is a member of the Society of Professional Consultants.