Knowing what to stock in your store is a matter of personal taste and having a "feel" for your customers. It is more of an art than a science. The same is not true, however, when it comes to how much to stock in your store. That needs to be based on historical data, when possible, and a bit of restraint when it is not possible.
For example, let's say you sell ten non-seasonal widgets a month and that all ten fill an area of about six cubic feet. Now, let's say your vendor is offering a promotion of 5% off, if you order 100 of these widgets and take delivery now. Before you say "yes" to this deal, you need to figure out if the 5% makes up for the cost of storing the extra 90 items. You also need to make sure that this deal won't tie up cash that you would rather spend on something else. I had this point hammered home myself just yesterday when I found a 500-count box of 6x9 envelopes. I admit that I probably approved that order, but I clearly wasn't paying attention, because we probably use less than 15 of these a year! So, no matter how good of a deal we got, it was a poor use of cash flow—and the box has been taking up precious shelf space for months.
Seasonal items are more difficult because they change every year and you have a small window in which to sell them. Before you place an order for seasonal items, look at how similar types of items sold last season and what sizes sold best. Place as small of an order as you can unless you know in your heart that it is a winner. You hate to be in a situation where you are missing out on sales because you've run out of stock, but that is better than having to discount merchandise below cost to get rid of it.
Many retailers believe that the cost of an item of inventory is the cost of that line item on the invoice. Typically, that is only part of the story.
For instance, that invoice may include freight and/or discounts. When that freight involves inventory, it should be prorated and included in the cost of the inventory, rather than treated as an overhead expense. And, as much as you might like to think of your trade and promotional vendor discounts as bonuses, they, too, need to be applied to the cost of your inventory in order to arrive at a true valuation.
In addition to the inventory cost described above, all of your inventory also has a "carrying" cost. That is a little more difficult to measure and includes the following:
It would be impossible to determine these costs by item, but you should be able to determine overall financial and space costs to arrive at a percentage that could be applied based on the cost of your inventory. To get markdown/write-off costs, take the total for an average 12-month period and divide that by your total inventory value. Unfortunately, you can't include your carrying costs in the cost of your inventory for tax purposes, so you have to keep track of it separately and remember to keep it in mind when you are evaluating profits or profit potential. Some software packages, such as NCR CounterPoint, provide extra fields for you to use to record your carrying cost and total real cost for each product.
- The cost of the money that is tied up while the items are in inventory. That could be the cost of borrowing money to finance it or the loss of interest resulting from not investing it elsewhere.
- The cost of the physical space required to store and/or display the merchandise, including all of the costs associated with that space (e.g. utilities, insurance, etc.).
- The cost of potential markdowns and/or of writing off obsolete merchandise.
There is one other potential discount that I have not mentioned and that is the discount you receive for prompt payment of your invoices. Depending on how you account for this, it may or may not be included in your inventory cost. If it isn't, then be sure to include it as an offset to your carrying costs.
Why is it important for you to know the real cost of your inventory? For one thing, it is information you need to know when establishing selling prices for your merchandise—or deciding if a product is even worth offering. For another, it is an important consideration when determining how much inventory to order.
If you are like most retailers, you are very careful about recording the stock that you receive and the inventory that you sell. But, how careful are you about recording other types of inventory movement? For instance, do you keep track of:
- items returned to vendors for repair or replacement, to make sure the vendor responds?
- items that are donated to charity or other causes?
- items that you've donated or scrapped because they are too old or dated to sell?
- items used for demos, displays, or in-house purposes?
- damaged items that are scrapped?
If you think these
transactions involve quantities that are too small to worry about, you might want to think again. For one thing, you probably need the money/inventory from returned goods much more than your vendor does. For another, you might find that you are donating more items than you can afford, or that you need to do a better job of buying. Also, if you don't know how much of your inventory is missing as a result of valid transactions, you will have no way of knowing how much is due to other causes, such as outright theft.
Knowing where those missing bits and pieces are going is the first step in reducing shrinkage—not only of your inventory but also of your bottom line.
All retailers know they are supposed to "control" their inventory, but that means different things to different people. According to Merriam-Webster, the definition of Inventory Control is:
"Coordination and supervision of the supply, storage, distribution, and recording of materials to maintain quantities adequate for current needs without excessive oversupply or loss."
This definition might seem obvious but the devil is in the details, as they say. For example, what does "supervision" really mean? What needs to be recorded besides purchases and sales? When is oversupply considered excessive?
Inventory control is one of those areas where minor adjustments can have a huge impact on profitability. So, over the next few weeks, I'll explore some of the less-obvious aspects of inventory control and also provide tips on how to handle the more obvious aspects more efficiently.
If you believe, as I do, that selling gift cards is good for your business, then how can you sell more of them?
The first thing you need to do is get them out of the drawer and near the register where people can see them. Your customers shouldn't have to ask you if you have gift cards.
Next, give your customers some packaging options to help them personalize their gifts. A Happy Birthday carrier is a must, as is a Christmas, Hanukkah, and/or generic Holiday carrier during the holiday season. Depending on the type of store you have, you may want to offer different styles and colors that would appeal to men, women, and/or kids. Notice that I am mentioning varieties of carriers here, not varieties of cards. You don't have to spend a fortune to get good results with gift cards. I recommend that you invest in a classy-looking card that represents your store, and a variety of generic carriers for packaging options.
Gift card tins, boxes, and/or bags can make the idea of purchasing a gift card even more appealing and also help you increase profits. While you might include a carrier in the cost of the gift card, you can charge extra for fancier packaging options.
Finally, make sure your gift cards and packaging are attractively displayed.
I believe gift cards are one of the most under-rated and under-marketed tools available to retailers today.
Did you know that Starbucks sold 1.3 billion dollars in gift cards during the last holiday season? That apparently amounts to 25% of its sales during that period. Imagine how much better your cash flow would be if the average cost of goods sold for 25% of your sales was less than a dollar!
To be sure, most of those gift cards will eventually be redeemed, but that's okay, too, because:
- You get to use the money, interest-free, until the cards are redeemed.
- Each gift card has the potential to introduce a new customer to your store, or re-introduce an existing customer to what you have to offer, at very little cost to you.
- Customers typically spend more than the value of their gift cards when they redeem them, leading to increased sales.
Then, there are the cards that are never redeemed. You get to keep the profit on those. Even if that only amounts to a few cards, it will at least help cover your card issuing costs.
If you think you should give up on plastic gift cards and just wait for the electronic ones to be more common, I urge you to think again. Electronic gift cards are forecast to be less than 4% of total gift card sales this year.
Next week, I'll offer some suggestions on how to increase gift card sales through better marketing.
As I explained last week, mobile Point-of-Sale is a great tool for increasing sales. But, if you don't have it now, where do you begin?
The first step is to make sure that your existing P.O.S. system supports mobile P.O.S., or that it supports an interface to a mobile P.O.S. system. If it doesn't, then you won't be able to consolidate sales or inventory for your mobile transactions. That makes the investment in mobile technology a lot less appealing.
Assuming your system supports mobile P.O.S., the next step is to make sure you have the infrastructure in place to support communications between your mobile system and your main P.O.S. system. Most mobile systems communicate via a wireless connection. That means you need to use the system within wireless range of your server (or within wireless range of an internet connection, for cloud-based systems). Even if you already have wireless access in one part of your store, you may have to add one or more wireless access points to extend that coverage to other areas. This is especially likely for stores that cover a large area (e.g. garden centers) or stores with walls that block the wireless signals.
If you are going to use your mobile system at an off-site location, then that location either needs to have reliable network access, or your mobile system needs to be able to run using a cellular connection or no connection at all. Depending on the type of remote access your mobile system uses, an upgrade to the firewall at your server site might also be necessary.
If much of this information went right over your head, don't worry. The real place to begin is with your P.O.S. system vendor. He/she should be able to guide you through the process. If you don't have an existing P.O.S. vendor or you're looking to upgrade to a system that offers mobile P.O.S., please give me a call!
206.624.7854, extension 701
Mobile Point-of-Sale is no longer a novelty. More and more retailers are embracing this technology and the reason is simple. It increases sales! Here's how:
- It expands your sales territory, exposing you to new customers. Take your merchandise and your mobile P.O.S. system to vendor fairs, sidewalk sales, farmer's markets, and music and sporting events. Mobile P.O.S. is also perfect for pop-up stores!
- It makes it easier for customers to complete their purchases. Mobile P.O.S. is great for line-busting during peak selling seasons, and may also be a less expensive alternative than adding full P.O.S. stations to other departments in your store.
- In some cases, mobile P.O.S. allows you to spend more time with your customer, which can give you more influence over his or her buying decisions. For example, you could use it in a garden center when a new homeowner comes in looking for landscaping ideas, or to provide a "personal shopper" experience in a clothing store.
If you've been considering mobile point-of-sale but don't know where to begin, I'll offer some advice on that next week.
If you are like most retailers, you invest quite a bit of money in advertising, in order to get shoppers to come to your store. Once you get them there, you want them to purchase something, of course. Better yet, you'd like them to come back and purchase even more items from you in the future.
I recently came across a great article on how to keep those customers coming back:
Let me know what you think!
I've covered several different technologies related to credit card security over the last few weeks. Which ones should you implement and when?
I recommend implementing point-to-point / end-to-end encryption first. This virtually eliminates the potential for large-scale theft of credit card data from your system. It will likely require an update to your POS software and/or processing gateway and all new payment terminals, so it is not an inexpensive option, but it is well worth the investment. Check with your software provider to determine if and when the new technology will be available for your system.
The second most helpful technology is EMV / Smart Card technology. However, it only stops invalid card numbers from being used; it doesn't stop them from being stolen. So, it offers more protection for the consumer than the merchant. Also, it won't be generally available until sometime next year, and a lot can happen within a year.
I think tokenization is the least valuable of these technologies right now, although I believe it will become more important once point-to-point encryption becomes more widespread. Ideally, it will be implemented in conjunction with P2PE, for maximum protection.