In this issue Alan Fisher draws together the best practices advocated in his previous GOLF RETAILING articles.
It is so much easier to run a retail operation by the seat-of-your-pants than it is to spend time reviewing the past and predicting the future. I said easier, not more successful. Not many people enjoy reviewing reports and even fewer people use the information to make a decision for the future. Ah yes, we keep repeating the mistakes of the past. One of your shirt manufacturers constantly costs you profits, but the rep is a good buddy or that’s the shirt that your golfers like best.
You may recall that I compared looking at gross profits to determine how well you are doing as being similar to general ledger entries being an inadequate substitute for a financial statement. Gross profit reports are a help to identifying the details of a problem, but only when you discover what the problem is.
Look at merchandise only. Remember that sometimes golf retail likes to ‘hide’ its true losses with other revenue streams such as salaries, green fees, trolley or cart hire fees and lessons.
Forget the big gross profit report. I had a customer in Portland, Oregon years ago whose staff ran a 500-page report of sales and profits each month. When I asked how he used it, he said, “I give it to my grandkids to doodle on”.
So create your own report. It is relatively simple to create a spreadsheet to help point you to problems. And once you create that spreadsheet, all you must do is feed it maybe 30 or so numbers every month.
Start with a good category system. A retail category is a collective group of products that, in the eyes of the consumer, are reasonably substitutable. So if I see a shoe I like but you don’t have my size, you don’t say, “gee, Alan, we’re out of that size. How about a sweater?”
Use a spreadsheet to build analyses. I’m sure you don’t like reviewing reports, particularly if they don’t indicate anything. Quarterly and yearly analyses give you the bigger picture to make smarter decisions.
Build 3 columns for each category (and another one which is a total of all categories) with Sales, Gross Profit £, and Inventory Value. For each quarter and year-to-date, calculate the Gross Profit percentage and the Stock Turn Rate. For GP percentage, total the sales and the gross profits for the three months and of the year to date. Then divide gross profits by sales.
Look at the top and then layer down. Review the gross profits for the shop and for each category of merchandise that you carry. Which ones are above and below the shop totals?
Next, review the supplier profitability within each category. If you carry four suppliers of golf shirts, review how each manufacturer’s profits compare with the shop profit percentage AND with the category profits. In some categories, you will find some suppliers are not worth carrying. When that is the case, use markdowns to reduce that inventory and reinvest some (not all) of that recovered investment in either a profitable vendor or another vendor. It may be necessary to cover a price point that is popular but unprofitable by finding another supplier that has the potential to be more profitable.
You will likely find that there are categories, suppliers and individual items that are not profitable that you absolutely must carry and some that you do not.
Improve the turn rate. For turn rate, you need a year’s worth of history, as it is an annual number. Your inventory is probably at cost, so you will need to calculate sales at cost (sales minus gross profits). Then average the last twelve months of inventory and divide sales at cost by average inventory. Review each category turn with the shop total.
In order to improve that turn rate, which is the goal, you will need to plan the future with less inventory than you carried in the past. So if your average was £5,000 in one category, try to accomplish the same sales with an average of £4,500 for the next year.
In closing, I will tell you that every retail consultant attacks lack of profits by trying to improve the turn rate, not the other way around.
Alan Fisher is a US-based retail consultant focusing on open-to-buy, inventory analysis and profitability strategies. He works with golf shops, retail apparel and gift shops. He can be contacted at: firstname.lastname@example.org or call: 020 3289 4653.