5 Strategies For Profitable Retail

Five Strategies For A More Profitable Retail Operation

Five Strategies for a More Profitable Retail Operation

• Agenda1. Create a “Lean & Mean” Inventory

2. Utilize Initial Markup and Margin Builders

3. A Correct Markdown Strategy will Make the Retail Business More Profitable

4. Implement a Focused Strategy and Staff to meet Retail Sales Budgets

5. Low Cost Solutions for Keeping Your Shop Up-to-Date and Improved Visual Presentation

“Lean & Mean” Inventory

• Key Concepts to Control Inventory:1. Evaluate current inventory. What is left that you can

extend into next season and supplement with new purchases?

2. Small frequent deliveries of merchandise and buying deeper with successful vendors. Adjust orders accordingly based upon in season sales.

3. How did vendors perform in retail sales, profitability, unit sell thru? Be prepared with a review of performance with sales rep/company

4. Create strong vendor partnerships to negotiate better pricing, priority shipping, a discount program that fits your unit/sales requirements, merchandise return options, off-price priority, and special events.


• Develop a comprehensive financial plan:1. Time to use an Open To Buy! Can improve

profitability from 5% to 8% on average!a. Forecasting:

1. Retail Sales – 2008/2009 history, flat, increase or decrease to actual

2. Cost of Sales – 2008/2009 history, adjust out excessive markdowns, focus on maintained markup

3. Average Inventory – Simple method

Cost of Sales ÷ Turnover Goal = Average Inventory

“Lean & Mean” Inventory• Develop a comprehensive financial plan: Forecast Example

Determing Average Inventory using Turnover GoalDepartment Retail Sales $ Sales % Turn Goal COGS Cost of Sales Avg Inv-costGolf Equipment $45,000.00 15% 2.5 80% $36,000.00 $14,400.00Golf Accessories $93,000.00 31% 3.0 70% $65,100.00 $21,700.00Men's Apparel $114,000.00 38% 3.3 68% $77,520.00 $23,500.00Women's Apparel $48,000.00 16% 3.0 65% $31,200.00 $10,400.00Total $300,000.00 100% 3.0 70% $209,820.00 $70,000.00

“Lean & Mean” Inventory• Develop a comprehensive financial plan:

1. Time to use an Open to Buy:a. Forecasting continued1. Planned Inventory Levels – 2008/2009 history, capacity, %

of Sales to % of Stock

2. Monthly Purchasing Budget Formula

January

Planned Beginning of Month (BOM) Inventory at cost $42,000

Minus Cost of Goods Sold for the month - $ 8,400

Revised Inventory = $33,600

Minus next month’s BOM planned inventory at cost - $49,000

Equals planned receiving at cost for the month: = $15,400

“Lean & Mean” Inventory• Develop a comprehensive financial plan:

1. Retail Budgets: Planned receiving, update with orders, review open to buy

Total Store Jan Feb March

Beginning Inv. 42000 49000 63000

Est. Sales 12000 15000 21000

COGS 8400 10500 14700

Adj. Inv. 33600 38500 48300

Planned Inv. 49000 63000 77000

Planned Rec 15400 24500 28700

Total Purchase Orders 13,000 17,900 16,700Open To Buy 2,400 6,600 12,000


• Develop a comprehensive financial plan:1. Time to use an Open To Buy

a. Update key components every montha. Retail sales, cost of sales, monthly inventory, on

order received, on order not received.

b. Account for shrinkage, physical inventory vs. book, any non-traditional sales.

c. Are you on plan? If not why? What adjustments need to be made?

d. Communicate plan of action and implement immediately.

Initial Markup and Margin Builders

• Profitability begins with the right markup plan for your retail business

• Types of Markup/Pricing Programsa. MSRP – Manufacturers Suggested Retail Price can range from

40% to 60% depending upon item.

b. Keystone Markup – This is a 50% retail markup up.

c. Keystone + - adds additional dollars to the base keystone markup. Keystone +2 would be a 50% markup plus $2

d. Mill River – Term coined by a golf club designating a cost plus pricing program. Typically, cost + 10%

e. Member Pricing programs – Term coined in private club sector referring to a discount members receive on their purchases. i.e. 20% off suggested retail, or a keystone markup


• Margin Buildersa. Off-price goods – vendors offer merchandise on sale to

accounts. Be sure to be on list for first offeringsb. Volume purchasing programs – qualify for reduced

wholesale pricing when meet volume requirements. Be sure to evaluate units necessary to qualify can be sold in reasonable amount of time.

c. Early payment discounts – Be sure to take advantage of discounts for paying invoice early. i.e. 2% net 10 would qualify you for a 2% discount from invoice if paid within 10 days.

d. Custom programs negotiated by facility – Ask for help with shipping, logo costs, discounts for an additional order or units above last year, fixture costs, etc.


• Determine correct markup for your retail business

a. What is your net profit goal?b. What are operating expenses the golf shop

income needs to pay for?c. What is the markdown/reductions goal?

• Formula Profit +Expenses+ Reductions = Initial Markup%

Retail Sales + Reductions

Initial Markup and Margin Builders• Markup Calculation - $300,000 Retail Sales1. Net Profit goal for the total golf shop is 15% of the total retail income or

$45,000.

2. Operating expenses are 20% of the total retail income or $60,000.

3. Markdowns/Reductions are 25% of the total retail income or $75,000.

% method: 15% + 20% + 25% = 60% = 48.0%

100% + 25% 125%

$ method: $45,000 + $60,000 + $75,000 = $180,000 = 48.0%

$300,000 + $75,000 $375,000

In this example, the total golf shop needs to have an average initial markup of 48% to

meet a total golf shop net profit goal of 15%


• How do I use my initial markup percent to determine the correct retail selling price? Divide the known cost price of the merchandise by the cost complement of the markup goal.

100%

Markup Goal - 48%

Cost Complement = 52%


• Correct way to use initial markup percent:• Calculation using our quick tip:

Wholesale Price $23.00

Cost Compliment .52

Original Retail Price =$44.23

Round this figure up to an even $45.00 for pricing purposes.


• Incorrect way to use initial markup percent:• Why can’t I simply take the wholesale price and multiply

times 1.48? (100 plus the markup?)

Wholesale Price $23.00

100 plus markup x 1.48

Original Retail Price =$34.04

Round this figure up to an even $35.00 for pricing purposes.

• Wait, $45 retail price vs. $35 retail price, how come it is so much different?

Initial Markup and Margin Builders• Cost Markup – When you use the markup plus 100,

this is determining the dollar amount of markup needed based upon the wholesale cost. – $35.00 – $23.00 = $12.00 markup– $12.00 ÷ $23.00 = 52% markup as a percentage of the cost

• Retail Markup – By using the compliment of your markup you are determining the dollar amount of markup needed based upon the retail price– $48.00 - $23.00 = $25.00 markup – $25.00 ÷ $48.00 = 52% markup as a percentage of the retail price

Markdown Strategy

• Markdowns are a necessary business process in any retail business. Pre-plan your Markdowns!

1. Establish a markdown budget per month/quarter/year

2. Can spend each month as necessary to move slow sellers, or “save” to use for larger sales.

3. Controls the amount of dollars you spend on markdowns and helps you to implement your markdown strategy.

Markdown Strategy

• What does a markdown strategy or plan look like? Step 1. First start with frequent/smaller deliveries of inventory!

• If the golf shop doesn’t get overstocked by controlling flow of goods into the store, you don’t have to take as many markdowns.

• Work deliveries for softgoods back to previous months color stories or basics so that you can continue to sell product at your retail price.

• If purchasing off price goods, factor into your sales promotions to help pay for markdowns on inventory with less markup.

Markdown Strategy

• Markdown Strategy cont:Step 2. Develop plan to I.D. slow selling merchandise. This is done by determining how much product you want to sell in a given time period and than determining your plan of action to make it sell:

Time: 4.0 turnover goal = 90 days selling model Amount sold: Plan to sell 50% of inventory in 45 days. Action: Merchandise not meeting this goal subject

to markdown immediately.

Markdown Strategy

Markdown Strategy cont:Step 3. Set markdown plan of action:

a. Rotate/Focus/Signage = 50% sell thrub. 1st markdown soft sale most profitable

c. 2nd markdown more aggressive

d. 3rd markdown final clearance

Markdown Strategy

Markdown Strategy• Utilizing your markdown strategy will help you

maintain profit margins and cost of sales goals

100 shirts at a cost or $23.00 and Retail $45 (IM 48%)

Units Dollars Extension Markup

Sales at Retail 45 x $45.00 = $2,025 48%Sales @ 30% off 35 x $31.50 = $1,102 27%Sales @ 50% off 20 x $22.50 = $ 450 2%Total Sales $3,577

Gross Margin $1,277 or 36% Cost of Sales $2,300 or 64%

How do Mill River programs or member discount programs affect your markdown strategy?

Staff Strategy and Training

• Every golf shop must have a program in place to TEACH employees how to sell and service customers.– Step 1 : Product Knowledge– Step 2 : Sales training– Step 3 : Visual display training– Step 4 : Sell outside the box

Staff Strategy and Training• Step 1 : Product Knowledge

– Staff needs to learn features and benefits of the products which have been purchased to sell in the golf shop!

– Beginning of season give staff a list of vendors and products along with descriptions/examples of what is coming in for the season

– Set up a product knowledge training schedule with key vendors. You can allot 1 hour per vendor to educate the staff. This is an all day product knowledge training approach

– You can also set up smaller training days like hosting many demo days. I.e. on the days you are having demo days have the staff and vendor arrive ½ hour early to review products which customers will be able to demo for the day

– Be creative. Assign each staff member a vendor to research and have them do the training/sharing of information in a staff meeting once a week

Staff Strategy and Training• Step 2: Sales training

– You can NEVER assume your employee’s know how to sell!– Selling is outside most peoples comfort zone so you have to

help them become proactive and proficient– Empower them with the knowledge and confidence to be

successful at selling by providing recommended articles and small books on selling that you will quiz them on or do role playing with them to have them put into practice what they learned

– Hire secret shoppers to see how your staff handles customers and sales when you are not around. This is not meant to be a negative experience, rather to give you information about how to make your staff better!

– A key component to successful selling is for staff to be ON THE FLOOR not BEHIND THE COUNTER and working with the product. Straightening displays, putting out new product, dusting fixtures, etc are all great ways to get your staff hands on with the product and interacting with customers outside the counter


Step 2: Sales training Communicate to Staff• Back office system that communicates the following:

– Monthly orders – Vendor– Color story– Price points– Visual Merchandising information/examples

• Women’s Department Spring 2010 Master Calendar:

January

Tehama PO# Tehama sp1001

1/01-1/15 –

72 pieces

Million Dollar Baby



• Step 3: Visual display training– Again, never assume an employee knows how to fold

shirts, put outfits together, change a display, etc. These skills have to be taught.

– At the beginning of the season, maybe in conjunction with product training, introduce some basic elements to them of visual display methods.

• Have them practice folding shirts in different ways. • Give them women’s product and see how they would put

outfits together on a mannequin. • How would they put a display table together with multiple

products– Hands on training will give them the confidence to

support key personnel in visual display and maintenance

WALL TEMPLATE FOR WINDOW BOX PRESENTATIONS

style# Style# :BUTTER KNIGHT 4 shelves

display pair shoes

: : BUTTER WHITE KNIGHT START OF WALLED

HAT SECTION

. . . GRAY WHITE POMADORI

shirts on straight arms SEE HAT

GRAY POMADORIJANUARY FASHION GROUP PLAN O GRAM OVERFLOW FOR MORE

DETAILS

MORE : : JAN

: :

shirts on straight arms THIS TEMPLETE SHOULD BE USED FOR IZOD G BACK WALL

•This clearly gives visual direction that any staff member can setup.



• Step 4 : Sell outside the box– One of the biggest challenges a golf shop can have is getting

their core customers to continue to purchase merchandise– Teach your staff to get to know them and see what other

products you can offer them• Small business owners are always spending money on logoed items

for marketing and advertising• Charities and non profit organizations have small budgets, but can

be a great opportunity to sell to if you know a key contact which may be your customer

• Make sure the staff communicates special pricing to those customers who may be with a small business or organization that you offer special pricing on a selection of items

– Need to focus on add on business after you have your staff trained to be efficient daily in the golf shop operations

• What is your shop overall Image?

• Worn Carpet/Traffic Path

• Dirty and damaged window coverings

• Dirty and damaged fixtures

• Chipped stained surfaces

• Burnt out light bulbs

Low Cost Solutions to Keep Your Shop Up-To-Date and Improved Visual Presentation

Clean House:• Annual Housekeeping Process

•Clean carpets•Fresh paint•Re-stain fixtures•Clean/dust light fixtures•Replace light bulbs•Repair, replace, freshen fixtures and display props and accessories



• Visual Merchandising• Effective Visual merchandising can increase sales 10%

to 50%!– Must have standards in place

• Brand• First Impressions• Purposeful• Motivating• Accessories• Train all staff


• Visual Merchandising – Use fixtures to

direct traffic thru shop

– Create departments

– Cross merchandise

– Lifestyle displays

– 360 degrees of shopping

– Great lighting

– Clean and organized


– Evaluate your golf shop space and usage:• Monthly/Quarterly/Annually

– Traffic flow– Merchandise allocation on selling floor– Merchandise retail sales performance analysis– Focal points– Overall character of shop– Lighting needs– Establish Budget


Too much can mean less sales

Reduce fixture and organize display toEncourage easy shopping


How much floor space is allocated vs. POS sales

Prime real estate for high margin productAbility to visually motivate customers to purchase.


• Visual display standards – Industry

resources like AGM

– Partner with vendors

– Other golf shops

– Assign departments to teams for merchandising

– COPY!

Thanking You

5 Strategies For Profitable Retail

Documents

retail markup

monthly inventory

initial markup

physical inventory

revised inventory

current inventory

season sales

planned inventory levels