Collins Street Inventory Management Presentation

The Retail Doctor® Group Pty Ltd

www.retaildoctor.com.au

INVENTORY MANAGEMENT

© Copyright 2009. The Retail Doctor® Group Pty Ltd

Inventory Management

TH

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5 RE

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FAIL

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SThe Top 5 Reasons for Failing Business


In 2007, every 11 ½ minutes one US retailer failed due to one of the

top 5 retail killers:

5. Out of control growth

6. Out of control expenses

7. Failure to manage gross margin

8. Out of control inventory OR

9. Being out of cash

OB

JEC

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Objectives


How to understand a merchandise

management system to improve

gross margin and cash flow

How to analyse product categories

to improve margin profitability and

cash flow

How to understand inventory

productivity

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Product

What would you measure?

Quantity

Operating margins (Prime & Finish)

Cost of goods sold

Profit by product

Stock turn

Sell through

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Inventory Observations


Inventory is the “heart” of a retail store

Inventory is the single largest investment of capital

Inventory is the cause of most successes and failures

Ultimately the goal of every retailer is to never own inventory –

perfection is sell and buy

Businesses that own inventory are called museums

‘Inventory is merely the physical correlate of deficient information’ (Evans &

Winster, Blown to Bits)

All inventory is evil (Jim Dion, 1986)

Treat your inventory like a houseguest that snores…

It will make or break you…..

FAC

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Facts


Most retail stores carry two to three times

more inventory than necessary

Most retail stores penalise their

customers for their own mistakes

Many retail stores have little idea of how

much inventory to purchase each month

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PR

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Real productivity is about doing more with less

Anyone can sell more with more inventory, the real trick is to sell more with

less inventory

BO

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Boosting Low Sellers


Presentation

Seasonal issues

Merchandise quality

Training product knowledge


Identify and clear everything over six

months old

Are you a museum or store?

Prepare aged inventory lists

Make the old look new

Get rid of everything over 12 months old – NOW!

SA

FE

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ST

OC

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Safety Stocks


Hide problems

Increase costs and risk

Reduce or eliminate profits

Are excuses for poor management

Ultimately decrease service levels

WH

Y A

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ETA

IL VA

LUE

?

Why at Retail Value?


Always ‘buy at retail’ because that is

what your customer does!

Your cash flow in is at retail

Your sales budgeting is at retail

If you have ‘deals’ at high margin an

open to buy at cost can put you way over

budget


Inventory KPIs

ST

OC

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NStock Turn


What is stock turn and why is it important?

Inventory represents the largest single element

of total assets

The sale of goods from this inventory is the

retailers chief source of operating profit.

Effective merchandise investment is of utmost

importance in achieving a profitable operation

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The quantity of inventory

The profile

The aging

The Stock turn = net sales / avg stock holding

View retail performance against benchmarks

* Inventory position / stock management is a key determinant of the

health of a retail business.


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Inventory generates gross margin dollars BUT it soaks up cash

What are their buying processes

Sales history, by product, place, time etc

Sales forecast etc

Do they operate and manage an Open to Buy plan

And most importantly…..

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Some Other Inventory Measures


Days Supply (how many days of sales you have with current and insight

inventory)

Weeks Supply (how many weeks of sales you have with current and

insight inventory)

Stock to Sales Ratio (stock divided by sales)

Percent Fresh (amount of inventory less than four weeks old divided by

total inventory)

Weeks Supply Units (unit sales divided by weeks)

Stock to Unit Sales Ratio (stock in units divided by unit sales)

GMROII (gross margin return on inventory investment - always a $)

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Suggestions


Use a four tier system to identify age

Current = less than 3 – 4 months old

Last season = 3 to 6 months old

Old stock = 6 to 9 months old

Danger = over 9 months old

Goal is to NEVER have anything over 9 months and over a year

is dead man walking!

Colour code or identify your stock


GMROI

GM

RO

IIGMROII


Gross margin return on inventory investment

Only financial ROI that returns a $ answer

For every $ that you invest in inventory what was the return?

Measures impact of margin and turn

Use to identify good categories / vendors

What is the minimum that is acceptable?


Markdowns

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Plan for Markdowns


Markdowns are a fact of life in retail

Although we cannot be right all the time, we should be right most of the

time!

Markdowns accurately report the true value of our inventory

Historical

Replacement

Market

Great retailers take markdowns every month

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Suggestions


Try to negotiate the longest payment terms that you can

Ask yourself if you can sell at least half of what you are buying before you

have to pay for it

Buy from vendors that give you longer terms or will collaboratively plan to

increase your stock turn so turns exceed terms

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Markdown Budget


For Each Month

Identify all your old merchandise

Identify what you want to promote

Take your ‘regular’ markdowns on the first day of the month

Take your promotional as they occur

Note: Regular Markdowns are permanent reductions in the selling

price while promotional markdowns are temporary and only

are incurred when the items are sold

What Influences P

rofit?

What Influences Profit?


Sell through

Stock turns

Inventory levels and their effect on profit

Prime margin vs. finished margin

ST

OC

K T

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N Stock Turn


ADVANTAGES OF A FAST STOCK TURN RATE

Retail relies on realising a large volume of sales on as small an inventory

investment as possible to meet customer demands.

Also, it is important, as fashions and seasons change, to turn the inventory

quickly so as to avoid excessive markdowns or carryover of out-of-season

inventory.

Another advantage is that a fast Stock Turn Rate will actually increase

sales due to the increased flow of fresh new merchandise into the store

creating excitement and a reason for the customers to come back

frequently.

TU

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Turnover Benefits


Lower inventory investment

Lower inventory risk

Less space

Fresher product

Always new to show customer

Lower selling price (maybe)


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Stock Turn

A few suggestions on how to reduce stock holding:

1. Buy more frequently, in smaller quantities.

2. Reduce number of assortments (vendors, styles, colours, sizes, prices).

3. Eliminate slow-selling merchandise.

4. Buy closer to the selling season.

DE

VE

LOP

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SA

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SDeveloping Sales Forecasts


Review past sales

Review past holiday and seasonal activities

Analyse changes in economic conditions

Analyse changes in the sales potential

Analyse changes in marketing strategies of the retail

organisation and the competition

Check weather forecasts

Create the sales forecast

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Calculate min / max levels for retail inventory and demonstrate

how to set correct inventory levels for a variety of retail situations.

Apply the concepts of top sellers / slow movers and inventory

aging to retail inventory to maximise profitability.

Explain why the retail method is preferred over the cost method for

the purposes of inventory management.

(continued)

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Managing the Merchandise


Developing a sales forecast

Determining the merchandise requirements

Merchandise control

Assortment planning


Receiving Inventory

Receiving M

erchandise

Receiving Merchandise


Check the merchandise to make sure it

agrees with the order, as well as the invoice.

Check the cost billed on the invoice against

the quoted price on the order.

Enter the retail selling price next to the cost

price on the invoice.

Price all merchandise showing the correct

classification letters or numbers.

Record the merchandise received on the

correct category or classification page.


Open to Buy

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Open To Buy – Strategies for Profitable Buying


Open to Buy Myths

OTB is only for fashion stores

OTB does not work with basics

OTB is complex and constraining

OTB budgeting is difficult

OTB is not for outdoor stores

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Open To Buy – Strategies for Profitable Buying


Open to Buy Realities

OTB leads to greater productivity

OTB works with basics

OTB is not complex

OTB leads to better customer service

OTB improves cash flow


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Open to Buy Begins With

Sales forecast:

External factors.....….

Internal factors....…..

Then ask the question:

‘How much inventory do I need to support my sales plan?’

OT

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OTB is Best Done By Category


Total Store

Department

Category / Classification

Sub-Category / Sub-Class

Line / Vendor

Item

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Benefits of an Effective Merchandise Management System


Carry the right inventory

Carry the right amounts of inventory

Manage cash flow

Earn a profit

THE RETAIL DOCTOR ® GROUP PTY LTD


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Collins Street Inventory Management Presentation

Business

Transcript of Collins Street Inventory Management Presentation