Saturday, September 4, 2010

Push versus Pull

Does it make good sense that convenience store retailers should order what they can sell and not order things they cannot sell? That's a dumb question, right? Who orders stuff consumers don't want? Well, I'm sad to say… just about everybody.

One purveyor of unsellable products in your store is called a 'shipper'; but the worst contributor of unsellable products is not a shipper. It's a supplier who is allowed to PUSH product into your store. As I mentioned earlier, 10 % of the inventory in your store (on average, about $6,000 at cost) is not only NOT selling, it's occupying space where items that could be sold might be placed.

Let's assume a typical store's general merchandise, groceries, sodas, chips, etc., turns about eight times per year, producing a gross profit of a little less than $170,000. Now let's go back to the $6,000 that's not selling. Assuming an average markup of 1.43 (set for a 30% profit), (Cost_Value*1.43) = $8,580 retail * 8 Turns/per year makes up a total loss in sales $68,640 per store. Assuming the same 30% profit margin, it's a net loss of $20,592 per store. Seeing things in this light, would it be worth your time to replace the dead stock with items that would sell?

Items that are not selling should be sent back to the supplier for credit, or you can try getting rid of it for ten cents on the dollar, because no matter how long it remains on your shelves you will never make a dime out of it.

Products are tiny little machines that should be generating cash. While deciding on the correct retail price for an item may be a complicated process, tossing broken cash generators and replacing them with products that sell is a no brainer. But if that's all you do, six months from now I can guarantee you'll find yourself in the same situation. In addition to tossing unsellable stock, you need a plan to stop it dead in its tracks before it darkens your door.

By examining your scan data and comparing it to what's on your shelves, you can easily target the items for extinction. Next, be sure your supplier gets a list of these squatters and understands you will no longer pay for those items if they should show up on an invoice again.

Cleaning house.
Convenience store operators can no longer afford the luxury of having dead stock on their shelves. The first thing you should do is to have an understanding with your suppliers regarding "what happens to stock that does not sell." However, since we have proven having the ability to return unsellable stock is not the answer to solving the problem of the stock cannibalizing your shelf space remember, most suppliers do not have the software to track their inventory efficiently, therefore, in most cases you are going to have to do it for them. Items that do not sell for twelve months should be considered dead. You need to get it off your selves immediately lest someone actually buys some of it and you accidentally order more.

There are several additional methods being employed to rid a store of dead stock. One is to lower the price and train your clerks to sell it. Compensate them by putting the net profit in a pool and dividing it up among them. You can also bundle it with a top selling item. You might even consider having one employee in your company appointed as the 'dead stock manager'. You could design a clearance area where everything on a certain table is on sale at 80% off retail. As a last resort, you might be able to donate it to charitable organizations for a tax deduction, but whatever you do, get rid of it.

According to a recent study 80% of all new products do not sell. For every ten new items you suppliers PUSH into your store, eight will not sell or it may cannibalize good sellers already on your shelves. Several things to consider before allowing a new product to be put on your shelves:

  • Consumer Value Proposition – Is the selling price likely to produce sales?
  • Transaction Count, Transaction Value and Gross Profit Margin.
  • It's assumed effect on existing products, both competitive and non-competitive.
  • Manufacturers' and/or your supplier's ability to resupply in a timely fashion.
  • Will the product be advertised and promoted well? Are you being used as an alternative to proper research?
  • If the product is intended to replace an existing product, is there a reasonable depletion plan being offered?
  • Products that do well in some areas may not sell in others.

LIMIT the count of a new product. Depending on the item, you may only need a few to test. DON'T accept a case of something you know nothing about no matter the discount. I would rather buy three of something at a higher price and sell it for cost, as opposed to getting stuck with a case of unsellable merchandise. If the first few sell well, then I can order more. Example: Let's say you accept three items and it takes a week to sell them, at least you have a good indication that a box of twenty-four would take eight weeks to get rid of. I have seen as much as 1,200 days of a particular item clogging up gondolas. After three years, not even employees will try to steal them.

Suppliers may not know what they're doing is dishonest. Times have changed drastically since the convenience store industry flourished into existence. Their job is to make money for themselves. You provide a convenient outlet for their inventory. Presales men and women have tremendous pressures put on them to move inventory out of the warehouse. In many cases, the difference between a computer salesman and a supplier is: A supplier KNOWS when he's lying.

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