Alan Fisher looks at the practical applications of Stock Turn Rate, as discussed in his March issue article and why a sale rail is never out of place in a retail environment.
Let’s call this the practical application of increasing the Stock Turn Rate (STR) – you’ve probably seen enough maths from me. If you recall (or read) my previous articles mentioning the value of STR, then hopefully you remember that increasing stock turn rate may DECREASE gross profit percentages but INCREASE gross profits in pounds. And we cannot spend percentages.
The STR is a measurement of time and its relationship between sales and inventory. It is calculated by dividing annual sales by average monthly inventory. And, in that calculation, it is necessary to be consistent in using both sales and inventory in the same language (both numbers being represented at either retail price, cost price or units).
I frequently point out that there are three people who come into the shop to potentially make a purchase. Each type of person has a motivation and an expectation, assuming they are not coming just to play.
Customer 1 is the person who wants the latest and greatest. Some factors motivating this person are snob appeal, trend setting and perhaps game improvement. When the manufacturers release the new golf clubs, this person wants that new driver. Of course, it may not have the impact on their game that a nice series of lessons might attain. But they believe the problem lies in what is extending beyond their golf grip rather than from the grip to the space between the ears. They want it and they want it first. Price is not a motivation.
Customer 2 is the one who knows what he/she wants from seeing your selection and does not care if someone else has the same item. Some of them are followers of others, but they see it, want it, buy it. It might be a blue shirt that several friends have, but that thought does not enter the mind. This person typically does not have a clue of what they are seeking and select by browsing. I fit that category nicely (hold your snide jokes, please, until you finish the article). When I enter a store to purchase shoes, shirts or ties (yes I wear one every five years or so, but it has to be a wedding or a funeral) and I’m asked, “Can I help you find something?”, my response is “I’ll know what I am looking for when I see it”. I have no idea but I’ll either find something or nothing. Price becomes more of a factor for this customer, but it is more likely to be a negative as in “It costs a lot more than I expected”.
Customer 3 is the catfish; the bottom feeder. He/she is shopping for a bargain and wants to see the ‘on sale’ rack. But this person is the most important to the STR. They buy your mistakes while reducing your profit percentages, but help you regain your original investment. This person allows you to convert weak inventory to cash to make a hopefully wiser investment for the coming months.
Several years ago, I was working with a top resort client here in the States. After we toured the shop and his storage areas, I asked him about a sale area in the shop. He looked down his nose and stuffily said, “The **** resort does not have sales”. So I asked him how he intended to get rid of $500,000 worth of useless inventory sitting in storage. Next time I visited, the ‘on sale’ rack was in place. It wasn’t much, but I had told him about the three customer types mentioned. I explained that quite a few people were staying here at the resort, paying $300 to $500 per night and could be hesitant to spend another $100 to $150 on a golf shirt with a resort logo. He could either provide them with an outlet to make a reduced price purchase or he could sell them nothing while the dust in storage continues to gather.
By the way, Americans love products with logos on them. Just ask Lynn McCool at Lough Erne. I have a closet full of them (but I have donated many to charity shops). It says to my golf mates, “I played here and you didn’t”.
Most retailers don’t like the catfish. They view him/her as detrimental to the profit seeking goal of the business. But next time, recognise that quite a few of your buying decisions were incorrect and this person is willing to erase the mistake if you grant a price concession.
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.