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Ted Hurlbut is a retail consultant, coach and speaker who helps independent retailers increase [url=http://www.teatrodeoro.com/hollisterde.php]hollister[/url] 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".
How do you deal with a quote like this, from an analyst at Redbook Research, a publisher of tracking statistics and independent analysis on the U.S. retail market, which appeared just this week:
"At department stores, shoppers were searching for limited selection of cold weather merchandise since retailers already cleared out [url=http://www.shewyne.com/moncleroutlet.html]moncler outlet[/url] winter goods due to lean inventories. Some retailers who are fully stocked in spring merchandise will continue to miss out [url=http://www.mxitcms.com/abercrombie/]abercrombie milano[/url] on the opportunity to sell cold weather merchandise."
To some independent retailers, this statement may sound reasonable. Most independent retailers are loathe to have a [url=http://www.jeremyparendt.com/Hollister-b5.php]hollister france[/url] customer come in their store and not find what they're looking for. Their natural instinct is to never willfully lose a sale. But the recession has changed many things, not the least of which is how independent retailers manage their inventory.
So it would only be natural for an independent [url=http://www.shewyne.com/woolrichoutlet.html]woolrich outlet[/url] retailer to pause over that statement and wonder if they do have significant inventories of winter merchandise left whether they've done the right thing, and if they don't whether they've done the wrong thing. Despite the statement above, in almost every case if you have little winter merchandise left, you've done the right thing. Let me explain.
The answer lies in the profitability of clearance merchandise. Start with the idea that significant inventories of clearance merchandise represent a portion of the last purchase made before the end of the season, whenever that might have [url=http://www.shewyne.com/moncleroutlet.html]moncler sito ufficiale[/url] been. (It might represent more than just that last purchase!) Simply stated, that inventory represents the decision whether to buy that last layer of goods or not buy it and bank the cash [url=http://www.gotprintsigns.com/abercrombiepascher/‎]abercrombie pas cher[/url] that would have gone to cover the invoice for it.
Stick with me here, at this point we need to [url=http://www.rtnagel.com/airjordan.php]jordan pas cher[/url] do some retail math.
To illustrate, let's assume at the time of the first clearance markdown that there was $1,000 of the last purchase still in stock, at full retail price, with a 50% markup. That means the invoice cost of that $1,000 was $500. To that $500, however, we need to add at least 8% ($40) for freight and processing, bringing the total cost basis to $540. But we need to reduce the retail value of the merchandise available for sale by at least 5% ($50) for damages and a minimum of 15% ($150) for final disposal of any unsold leftover merchandise, leaving a full retail value available for sale of only $800.
In order for that merchandise to be sold profitably, you need to clear $540 dollars from that $800 of fully valued inventory. That means that the average markdown of that merchandise when it's sold cannot exceed 32.5% ($540/$800). Perhaps before this recession that might have been possible (perhaps), but in the last year and a half, nothing much moves at clearance time for less than 35% off, and that doesn't factor in second markdowns that can take merchandise to 60% off, or more.
If your standard markup is more than 50%, it gives you a bit [url=http://www.jeremyparendt.com/Hollister-b5.php]hollister[/url] more room, but it won't likely change the conclusion. That's because there are still other, more difficult to quantify [url=http://www.shewyne.com/hoganoutlet.html]hogan sito ufficiale[/url] costs. There are the additional markdowns that are needed to move through the remaining inventory of any planned ending inventory at the time of first markdown. That merchandise is part of the now larger body of clearance merchandise and it's going to need an extra 5% to 15% in markdowns to move it through than it otherwise would have taken. Finally, there's the cost of not selling customers fully priced seasonally forward merchandise, and gaining the full margin [url=http://www.rtnagel.com/airjordan.php]nike air jordan pas cher[/url] of those sales, instead of forcing customers toward the markdown racks.
When it comes to that last purchase of the season, in most every case you'd be better off keeping your cash in your pocket.
Once upon a time you could clear out merchandise and perhaps break even (or at least [url=http://www.teatrodeoro.com/hollisterde.php]hollister deutschland[/url] come close). It might have made some sense to carry more merchandise later into the clearance season, if only to accommodate customers. But with margins a struggle to begin with, markdown percentages the likes of which we've never seen before, and cash flow under such intense pressure, carrying excessive clearance inventories is a luxury very few independent retailers can afford.
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