As an independent retailer, your goal is to get your retail business on more solid footing. For most, the emphasis naturally falls to rebuilding sales, and success or failure may very well hinge on inventory management.
For a number of years, until the recession hit in full force in 2008, independent retailers had the luxury of not having to manage their inventories too precisely. This was true of retail at all levels. Sales were strong, the economy was solid (even if there were cracks forming) and financing was readily available at favorable rates.
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On the whole, retail inventories grew fat. There was no pressing urgency to tighten them up. For the most part, every independent retailer’s primary focus was nailing down every last sale.
How much things have changed.
During 2009, inventories were brought down dramatically, for several reasons.
- First, many independent retailers understood that with sales declining inventories had to be brought down to avoid slower turnover and aging inventory.
- Second, inventories were brought down in an attempt to create a sense of scarcity and urgency within customers, and put a floor under falling retail prices.
- Finally, many independent retailers liquidated inventory as the only remaining available source of funds to cover monthly cash flow deficits.
While we are not in the middle of an economic recession, independent retailers need to manage inventories better. Small retail owners need to be prudent especially if the capital to re-inflate inventories just isn’t there. For many independent retailers, there’s no longer any margin of error in how they manage their inventories.
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What does this mean for independent retailers as we go forward? Here are several thoughts.
- Assortments have to be tight and focused on the core mission. It’s no longer feasible to carry expansive assortments, like a fishing net cast to catch every last customer.
- Supply chains have to be managed aggressively. Vendors almost always try to push inventories down the chain into retailer’s stocks. Independent retailers must push back hard on vendors and not let this happen.
- Independent retailers must adopt a just-in-time attitude toward inventory. Excess depth of inventory is no longer sustainable. Reorders must be placed more frequently, vendor minimums negotiated downward. Longer peghooks must be traded out for shorter, wider shelving for narrower.
- Independent retailers must establish monthly merchandise receipt budgets, derived from prudent sales and inventory plans, and those budgets must be adhered to. Every purchase represents a payable of some sort. There’s no longer the luxury of putting something in inventory without the capability of turning it quickly back into cash. Independent retailers can no longer plan to do big clearance business. The markdowns are unsustainable. It takes full margins to be able to cover the payables and the other expenses of the business. Heavy inventories, leading to heavy markdowns, are potentially lethal in this new environment.
- Owners and managers can no longer give short shrift to inventory management. It is now an essential skill which must master personally in order to succeed in an environment with so little margin for error.
The last point is key. Independent retailers must now be able to generate positive cash flows without the cushion of excess inventories to fall back on. Assortments and inventory levels are, in fact, directly related to pricing power and margins. Few can sustain positive cash flows with the greatly reduced margins that they experienced during the recession.
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The new environment is full of many challenges for independent retailers. Instinctively, many feel if they can merely rebuild sales that that will be enough. For most, however, it will require exceptional inventory management skills as well.
Ted Hurlbut is a retail consultant, coach and speaker who helps independent retailers increase sales, profitability and cash flow by leveraging his deep expertise and proven retail know-how, Get his FREE report “The 16 Essential Elements of a WINNING Independent Retail Strategy” Visit: HurlbutaAsociates.com
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