As the saying goes, “Timing is everything.” Although selecting the right vendors and styles at the right price points is very important, establishing ideal delivery start and completion dates for inventory orders can be just as important. Before buying for any new season, you need to know which vendors have been the most profitable, as well as what styles and sizes sold best in prior seasons.
Planning Delivery Dates for Better Profitability
First, start by running a vendor profitability report. You will want this report to rank the vendors in each classification (category in which inventory data is organized and analyzed), according to sales volume, maintained margin and turnover or sell through. If your POS system does not have a report similar to this, request it, as it is perhaps the most important report you can run. This exercise will be very eye opening and may provide the ammunition necessary for future vendor negotiations. You should also be able to run a similar report for sizes, colors and price points. Divide your open-to-buy (OTB, a financial budget for retail merchandising) dollars by allocating them to top vendors you think you will be using in each classification, making sure to leave uncommitted OTB dollars for reorders, fill-ins, new vendors and promotional merchandise. Once this exercise is complete you are ready to tackle the timing issue.
Building orders and planning delivery dates is an essential component to a sound merchandise plan. Remember that your customers like to see new merchandise just as much as your sales people enjoy selling it, which means you need a fresh flow of merchandise arriving throughout the season. Many retailers have a habit of front loading, or landing most of the merchandise early in the season. The store may look great early on, but it can look equally as bad as the season matures with less desirable sizes on key styles dominating the assortment mix. Stores that front load often commit so much of the OTB to early shipments that cash is not readily available for size fill-ins and off-price opportunities that may exist at season’s end. This practice slows inventory turnover, interrupts cash flow, and potentially restricts volume growth.
Many vendors offer price advantages or extra dating (extra days from the invoice date in which to pay the bill) if you permit them to land merchandise early. This approach often backfires because the merchandise is picked over before the season begins. Moreover, the sales associates are tired of the merchandise before the season arrives. If business does not pan out as planned you already have an entire season’s worth of stock. Had you written backup orders on key styles, you would have had much more flexibility in modifying or even canceling as a last resort.
Just as landing merchandise too early can be dangerous, so is landing it too late. Landing merchandise too late could be inviting markdowns because there is too little time remaining in the season to sell the goods at full price. This is the major reason why an in-store completion or cancellation date should be used on every order.
The final key to scheduling ideal delivery dates lives in the open-to-buy. Your OTB should reflect planned receipts by month, over the course of the season. Once you receive your monthly OTB, you can then create a percentage of planned receipts per month, instead of a lump sum amount. Your monthly OTB will reflect current trends and consumer buying patterns as they unfold over the course of the season. An additional benefit is that your accounts payable will be easier to deal with, and cash flow will better mirror your expenditures. Think in terms of several small invoices as opposed to fewer large ones. By following these simple steps you will have a clear picture of how receipts should flow. The closer you adhere to planned delivery dates, the better your business will perform.
Ritchie Sayner is VP of Business Development for RMSA Retail Solutions.