RETAIL: Art and Science of Buying

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The Art and Science of Buying

Copyright 2010 by Management One Ltd. All rights reserved

www.managementoneuk.com

Thierry Bayle T: (+44) 020 8576 6233 -(07939) 250 381

Managing the independent retailers’

2 greatest assets: stock and people

Introduction� Learn to make numbers talk! They will reveal the future! John D. Rockefeller

� It is not necessary to change. Survival is not mandatory. W. Edwards Deming

� Nothing is more dangerous than an idea when it’s the only one you have. Emile Chartier

� Outstanding leaders go out of the way to boost the self-esteem of their personnel. If people believe in themselves, it's amazing what they can accomplish. Sam Walton

� Unless you try to do something beyond what you have already mastered, you will never grow. Ronald E Osborn.

� The only limit to our realisation of tomorrow will be our doubts of today. Franklin Delano Roosevelt

� Your ability to learn faster than your competition is your only sustainable competitive advantage. Arie De Gues

� Management has the responsibility to explain to the employee how the routine job contributes to the business’s objective. If management cannot explain the value of the job, then it should be eliminated and the employee reassigned. Douglas M. Reid


Thierry Bayle T: (+44) 020 8576 6233 - (07939) 250 [email protected]

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RETAIL IN A RECESSION - TEST

I - How many squares canyou count here?

II – Let your neighbour seeyour watch

Topics• What do I mean by Science?

• Work by classification: by product / by supplier

• Benefits of classification

• WHAT : Preparing to decide what to buy

• HOW MUCH: Planning how much to buy

• WHEN: when to bring it in

• How buying improves cash flow and profitability1. Inside planning vs outside planning2. A balanced stock

3. Mark up

4. Discounts

• Marketing ideas

• Conclusion


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What do I mean by Science


Sales Average stock

Purchases MMU Turn GM£ GMROI

Class A £150,000 40,000 75,000 51% 3.75 76,500 5.22 Class B £200,000 180,000 130,000 42% 1.11 84,000 2.14 Class C £75,000 30,000 45,000 29% 2.5 21,428 .714 Total £425,000 245,000

• What decisions can we make about our business based

on the above scenario?

• If you don’t measure it, you can’t improve it

NB:

MMU: Maintained Mark Up - net mark up after discounts/ markdowns

GM: Gross Margin

GMROI: Gross Margin Return On Investment

Work by Product Type� Businesses grow by understanding what happens at

the class level

� Structure should be manageable and make sense for your business

� Think class then supplier to see opportunities

Accessories, Bags, Coats, Dresses, Gifts, Jackets, Jeans, Jewellery, Shirts, Suits, Tee shirts, Tops, Trousers but also Flat shoes, Heeled shoes …


“We implemented Thierry’s simple framework of buying by class (instead of by supplier) immediately. We have applied this now to our buying for the last 3 seasons and have

improved our sell through percentage considerably.” Laura

Therapy

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Benefits of Classifications

� Easier to spot trends

� Easier to identify balance in stock

� Sales planning is based on

bottom up planning rather than management expectations

� Avoids sweeping cuts or increases in budgets that can destroy a business –avoid duplication of buying similar goods

� Suppliers are not equally strong in every classification


Preparing to decide what to buy

� Identify the trends – Components of trends: colour, styles-cut-look, patterns, fabric, combinations

� Do you buy for your customers? Be a buyer not a shopper

� Supplier analysis- judge them class by classStyles / Quality / Credit Terms / Price point & mark up / delivery & re-order / Reliability / Consistency / Returns-Swaps

Bring with you history of sales, sell through, discounts, on-time delivery and return history

� Size analysis – colour analysis

� Purchase order management – Assortment Planning worksheet - Budget per class / allocate per supplier nb pieces/ average price


A strategy provides direction, motivation and restraint

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Planning How Much

� The buying plan (by class and month)

Need to keep a budget for immediate / in-season deliveries

� Sales forecasts that evolve monthlyForecast at over 90% accuracy is possible

The science: sales and stock levels equals open to buy

� Buy in Pounds not by unit

If you only do what you’ve always done, you’ll only have what you always had


When to bring it in

� Are you building customer traffic or sending your customers to your competition

� Poor timing discourages sales staff

� Merchandise delivered late has a shorter selling season & higher markdowns

� Early deliveries tie up cash, strong classifications are shortchanged & customers get bored


“Within a year we have reduced our stock holding by over 40%; we have reduced our forward spends by 30% and we have maintained and exceeded our previous year’s sales…” Laura Therapy

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How can buying improve cash flow & profitability

1. Measurements


Measurements to look at

•IMU

•Discounts / markdowns

•MMU Maintained mark up

•Stock to sales ratio

•Turn

•GMROI


2. A balanced stock

� More goods does not mean more sales

� Reduce discounts / Create cash by not overbuying / Buy into classifications that drive growth/ Generate margin pounds that pay expenses

� There is a ideal number for the stock level to meet your sales target.

� Ability to pick up trends and not react solely on last year’s figures

� When you compare in each class the % of sales and % of stock the class represent, does it make sense?

� A balanced stock to optimise sales at regular price instead of at discounted price


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3. Mark up


•Challenge yourself to increase it or pick up unique andvalue added collection ( newer or less well knownbrands, private label ,promotional buys )

• What should be my initial mark up

Desired Profit ____% 6%

Expenses ____% 41%

Discounts ____% 17%

Shrinkage ____% 1.3%

Total ____% 65.3

Total %divided by discounts +100 = Desired IMU

65.3/117 = 55.81 IMU ( 2,26 mark up excluding VAT or 2.66 with VAT )

How Mark Up affects sales


2.5 MU 3 MU

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4. Discounts� Do you know how much £££ are lost in discounts/

markdowns

� Discounts are a necessary action in retail

� Do you buy your discounts

� Discount early when a classification lags behind.

� During the sales period, ensure to have goods at full price to generate NOT ONLY CASH but profitability

� … Remember that discounts & markdowns affect the profitability of the business, it impacts cash flow, it increases expenses due to additional training, time spent when receiving the goods, logging them in and finally you take a marketing hit as you train the customer to buy at a reduced price …


How discounts affects profitability


2.5 MU 3 MU

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Marketing Ideas

� Where can we find new marketing ideas to remain competitive, attract new customers and increase customer spending (internet, trade shows, colleagues…)

� Event Planning

� Fish bowl and let’s start to get some names, tel, email from customers ( weekly/ monthly draw ..)

� Gift cards / Handbag trade in / Birthday parties

� General info – sales – marketing. Web sites like

www.gitomer.com

www.whalinonretail.com



RETAIL IS FUN – ENJOY THE SHOW

� A successful retail business is a balancing act: the parts must all work together

1 Strategic Plan2 Tactical Plan for *buying

*merchandising*selling*servicing


CONCLUSION

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Tel: +44 20 8576 6233 – Thierry Mobile 07939 250 381

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Testimonial

� We implemented Thierry’s simple framework of buying by class (instead of by supplier) immediately. We have applied this now to our buying for the last 3 seasons and have improved our sell through percentage considerably.

� He analyses the figures and gives useable feedback which can be acted upon instantly.

� Within a year we have reduced our stock holding by over 40%; we have reduced our forward spends by 30% and we have maintained and exceeded our previous year’s sales despite closing one of our 3 shops in February 2009.

� I would recommend everyone to make use of his skills and resources, which we feel are not only extremely good value for money, but have considerably improved our profitability.

Laura - Therapy

Thierry Bayle - Tel: +44 20 8576 6233www.managementoneuk.com


RETAIL: Art and Science of Buying

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