- Promotional discounts during the season
- And clearance markdowns as the season winds down.
Planning these discounts goes hand in hand with planning sales and inventories if you are using retail value as your unit of measure. "A discount, just like a sale, decreases the retail value of your inventory on hand," Hurlbut says.
Keep in mind that any retailer needs to protect gross margins and cash flow when planning clearance markdowns. "If you plan the date of the first seasonal markdown before the season even begins," Hurlbut says, "you can plan the inventory you want to have on hand at that point in time, and thus your markdown percentage.
If you've planned sales by month, ending inventories by month, and discounts by month, it's easy to calculate how much inventory to bring in each month, by category. Hurlbut says retailers need to bring in enough to cover that month's planned sales, planned discounts, and planned ending inventory, less the prior month's planned ending inventory. "In this way, for example, a buyer can know before a season begins how much inventory to plan on bringing in each month of the season," he says.
Once inventory receipts have been planned, the next step is to plan how to execute those receipt plans. Ask yourself: How much of my receipt plan do I want to commit to buying now, before the season begins?
"The pre-season commit percentage is the percentage of the season's receipt plan that you commit to before the season begins," Hurlbut says. "It's the bets you place before the season has even opened up." Every seasonal retailer has to place these bets. A seasonal retailer has to commit to enough inventory to set displays and cover early sales, sales which are a critical early indicator of the season to come. Similarly, a retailer frequently has to commit up front to merchandise scheduled for delivery later in the season to assure they'll have core stocks of key items and categories at that critical time.
Dig Deeper: Avoid Markdowns
Managing Seasonal Sales: Take Markdowns Expeditiously
The process doesn't end once the holidays are upon us. It's a continuous process. In-season planning is even more important. "As each week goes by, and sales trends begin to develop, adjust your sales plans accordingly, and adjust inventory plans for those updated sales plans," Hurlbut says.
When sales start to fall behind plan, it's very tempting to think that you'll make up the sales later in the season. But when sales fall behind plan, inventories begin to back up as well. When inventories back up, pressure builds on prices, which, if not addressed, can lead to steep markdowns that decimate margins. The first thing to do is adjust future receipts to get inventories back in line, but it usually doesn't end there.
"When sales are soft, the weakest of your items or categories will usually suffer disproportionately," Hurlbut says. "They simply aren't as desirable at their full retail price." As soon as you identify these items, mark them down. A 25 percent markdown, for instance, taken immediately, will accelerate their rate of sale and get you out of that inventory, he adds. But if you wait until clearance time, when everything is marked down, it may take 50 percent to 75 percent to clear the inventory.
Look behind the sales to understand why you are taking markdowns. "You have to be aware and smart. Don't just say, 'It's not moving fast enough,'" Butler says. "Why is it not selling? Do customers not like it? Or are they not seeing it?" Make sure that you are pricing the items right to begin with, particularly in this economic climate. "You want to be very sensitive about how you price merchandise," Butler says. "The customer is not looking for everything to be marked down. They're looking for good values, and there is a balance between value and price."
Managing Seasonal Sales: Recommended Resources
National Retail Federation's 2010 Holiday Sales Headquarters - Retail association's website for seasonal sales statistics and holiday survival guide.
RetailSales.net - A collection of resources aimed at helping independent retailers develop the skills required to thrive in today's intensely competitive business environment.
The Retail Owners Institute - Self-help resources for retail owners.
