Harnessing Inventory “Freshness” to Maximize Retail Sales
Guest Article by Ritchie Sayner, M1 Retail Expert
How many of you have customers that come in asking to see what came in last season or last year?
As ridiculous as that question may be, it baffles me to see retailers hanging on to merchandise that should be long gone or has no chance of ever returning a reasonable profit. Today’s shoppers demand a constant flow of fresh, new merchandise and they should. Without question, the quickest and most profitable way to increase sales is by constantly landing fresh inventory.
When I was a buyer, I had a love-hate relationship with merchandise. I was always excited about the assortment we had purchased and could hardly wait for the new season’s inventory to hit the selling floor. Once there, however, I couldn’t wait for it to sell so that I could repeat the process.
Fast forward to today. In my role as a merchandising analyst, clients sometimes justify hanging on to inventory longer than they should by claiming that the customer just doesn’t understand the new styles. The honest answer is that they don’t understand the customer. If new merchandise is in season, deliveries are timed correctly, styles and vendors are properly assorted, and prices are in line with the store’s image and profile, the goods have a high likelihood of selling quickly. If they do not, there is a problem that needs to be dealt with quickly. The reasons are not important at this point, the results, however, are.
Of the many useful metrics available on the Management One merchandise plan in Retail ORBIT®, the one I refer to constantly is known simply as “freshness”. What freshness measures is the amount of inflow (primarily receiving at retail but could also include transfers) each month for the past 30-60-90 days as a percentage of total retail inventory in the classification, department or store.
What I have observed by focusing on this important metric is that the higher the freshness factor is, the better chance the store has of profitable sales increases, faster turnover and by extension improved cash flow. On the contrary, when the freshness is consistently low, say below 50% for 90 days, we often find shrinking sales, and stocks that are bloated with old goods. In this example, half the merchandise is over three months old. In a fashion operation, this poses a real problem and leads to slower turnover, higher markdowns, and restricted cash flow.
Another way to look at freshness is by equating it to turnover. Having a consistent 90-day freshness of 100% or greater every month would ensure a minimum stock turn of four times. This would be a reasonable benchmark for most fashion merchants.
One of the many reasons that successful retailers are successful is that they are willing to do what less successful retailers are unwilling to do. Try focusing on the “freshness” in each classification and see how quickly unsuccessful categories become successful ones.
— Ritchie Sayner
If you have any questions or feedback, please let us know in the comments section below. Ritchie Sayner, is a seasoned M1 Retail Expert with a remarkable 44-year career and a talent for helping retailers succeed through deep data analysis. Ritchie has authored a stellar book on retail and regularly contributes educational material to our partners at the National Shoe Retailers Association.
Would you like to understand how to implement Ritchie Sayner's inventory management strategies in your business? Reach out to him directly via email.
You can also contact Management One directly for more information. We are always happy to discuss your results and share solutions for you and your indie retail business.