What exactly should a small retailer be planning? How should he or she go
about preparing these plans? And what should he or she do with them once they
are completed? Here are a few tips:
1. Plan sales. In order to effectively manage your inventory, you need
to know what you expect to sell. For larger retailers that are stocking many
SKU’s, sophisticated sales forecasting software may make sense. For many small
retailers, however, developing a simple spreadsheet from your POS sales history,
by month by key category, is most cost effective. Start with last years sales
histories, and make adjustments for unusual events, such as weather, out of
stocks, one-time promotions, etc. Then factor in the appropriate sales increase
or decrease percentage, based on a reading of the sales potential for the
category for the upcoming season. Finally, for larger categories, it may make
sense to break the sales plan down by sub-categories, styles or vendors.
2. Plan inventories. It makes little sense to bring in more inventory
at any given time than you need to set your displays, support your planned sales
until the next delivery, and provide a safety stock in the event of an
unexpected sales spike or a late vendor delivery. Buying inventory too far in
advance is one of the surest ways to find yourself over-stocked down the road.
For many small retailers, the best way to plan inventories is to plan to have
enough on hand at month end to support the next two or three months sales.
3. Plan inventory receipts. If you’ve planned sales by month, and
ending inventories by month, it’s easy to calculate how much inventory to bring
in each month. You need to bring in enough to cover that month’s sales plan and
ending inventory, less the prior months ending inventory. In this way, a buyer
can know in March, when preparing for the fall season, for example, how much
inventory to plan on bringing in each month of the season.
4. Plan markdowns. Planning markdowns goes hand in hand with planning
inventories. If you plan the date of the first seasonal markdown before the
season even begins, you can plan the inventory you want to have on hand at that
point in time, and thus your markdown percentage, as well as your markdown sales
before your second markdown, as well as all subsequent markdowns.
5. Plan dynamically. Once you’ve completed your preseason planning,
don’t put it in a drawer never to be seen again. Use that plan as a dynamic tool
to track the progress of the season. As each week goes by, and sales trends
begin to develop, adjust future sales plans accordingly, and adjust inventory
plans for those updated sales plans. If sales are exceeding plan, you want to be
sure you have the inventory to keep the momentum going. Conversely, if sales are
coming up short of plan, the sooner you adjust your inventory plans, and thus
your scheduled receipts, the less likely you are to end up with excess inventory
that needs to be marked down at season’s end.
The root cause of many inventory problems faced by small retailers is the
lack of adequate preseason sales and inventory planning. It may seem that
there’s never enough time for such planning, as if it’s a luxury that just can’t
be afforded, but in reality, it’s a critical necessity, a vital investment in
the future health of any small retailer.
(c) Ted Hurlbut 2004
Ted Hurlbut helps small retailers, wholesalers and
distributors improve the productivity of their inventory investment. He can be
reached at tedhurlbut@hurlbutassociates.com.
