Jeweller - February 2022

BUSINESS
Strategy
"Sure the pandemic has
made it a tough year
but we've increased
our sales this holiday
season. I know it's
another 12-months away,
but I'm going to review
the sales reports and
make a plan of attack
ahead of time since
some of our strategies
worked like a dream.”
Christmas and New Year are over, start
planning for Christmas and New Year!
You made it through the holiday trading period and might be sighing from relief. But it’s not enough
to hope for the best – start planning stock levels now for a successful 2022, writes JOSH STRUTT.
“Well have you heard about the great
crusade? We ran into millions, but
nobody got paid.”
These poetic words to the Hunters and
Collector’s famed rock song ‘Holy Grail’
could well apply to one of the most critical
inputs to retail success: sales, margins and
closing stock levels.
Time and time again we see that stock levels
are the ‘poor’ cousins of the three, yet they
command the single largest investment a
retailer makes.
How can your business replicate the world’s
best retailers, accurately managing your
stock levels – thereby avoiding unplanned
markdowns along with maximising cash
flow and profits - while other retailers just
buy what they think will sell, then cross their
fingers and hope for the best?
How many retailers really understand the
significant impact that a well-managed
stock position will have on increased sales,
liquidity, and profitability?
In search of the retail Holy Grail
Let’s explore successful end-of-season
performers from the ‘also-rans’.
While the Christmas and New Year sales are
over, you can now review your results based
on a number of key contributing factors
including economic confidence, weather,
competitive environment and the day of the
week on which Christmas fell. Recording
and analysing factors influencing these key
events in your retail diary for the New Year is
an important step to plan for the end of year
(EOF) 2022.
Opportunities to maximise stock profitability
depends on good management. Such
management is made a lot easier by good
systems – both computerised and manual
– and the discipline of measuring sales,
margin and stock position.
Working your systems for profit
Have a product budget: Formal product
management often works within a concept
known as Open to Buy (OTB). Plans for
the performance of product groups are
noted in terms of dollars and unit sales,
with corresponding levels of purchases,
discounts and delivery periods etc.
If sales are trending up, you need to buy
more. Discounts can be used to increase
units sold to reduce your closing stock target
where applicable. A good OTB system will
balance all these factors even though that
position may still be months away.
Whether you run a formal OTB via
a management system, computer
spreadsheets or even manually, the key is
to ensure you are working towards your
planned closing stock positions.
If you finish Christmas overstocked then this
trading period will damage your cash flows
and lead to unplanned discounts. Conversely,
too little stock means you have probably
missed out on sales.
‘Retail is detail’
and the detail
you are looking
for is based on
understanding
the velocity
of sales and
margins,
relative to the
amount of stock
held.
Finding the right stock levels to sales
A product budget is an invaluable tool to
manage EOF closing stock positions. It
can help map predictions for customer
purchases, sales, discounts and delivery
times and ensure these positions are
achieved.
Take some time to consider your ‘right’
stock levels.
Average margin: Retailers should try to
differentiate between the concepts of first
margin and average margin. The first
margin is the difference between the initial
sale price and the cost of the item (that is
the ‘buyer’s margin’).
The average margin will reflect the various
prices at which stock items are sold during
an overall time frame and take into account
discounts and/or changes in cost during
that period.
It is the average margin which is reflected
in the profit and loss, however many bestpractice
retailers ‘engineer’ better average
margins by managing first margins and
discounts across the whole trading period.
Whilst a discount may reduce average
percentage margin for part of your range,
the increase in sales may increase dollar
margin.
Good retailing balances these positions
without compromising the required dollar
margin. By managing your discounts, you
will avoid average margins being below plan.
50 | February 2022