Friday, April 15, 2011
The Case Against Category Management – Escape from CM - 1
I still don’t like CM, but in order to make CM work, you would have to acquire the services of a Category Captain, or as Jon Bratta mentioned, you’d need to have a Category Manager on your staff. If you’re like the majority of retailers in this industry, you probably have from one to ten stores, and the number of stores you have has a great bearing on your chances of having either one. However, the principals I’m going to lay out for you are the same regardless of your size, with the only difference being the way in which you go about it.
There are however some prerequisites:
1) You’ll have to scan. If you don’t have a POS that will scan, you won’t be able to do any of this.
2) You have to enter every item in your store into your POS. It will take you several days at first, but if you keep up with it daily, it’s worth the effort.
3) You have to be committed to making a change, and you have to make sure your employees are on the same page. If you get the slightest bit of resistance from anyone on your staff, get it corrected, else you’re going to have problems from day one.
4) You need a way of getting your inventory list and line item sales from the POS into a spreadsheet. Paper reports won’t help you, unless you employ minimum wage workers to enter the data, and then it may cost you more than it’s worth. (There might be an exception if you are a one-store operator with a small number of transactions.)
Note: There are alternatives to automating these processes beginning with Step 2 and going forward. We can provide most of those services for you, but there may be others out there that can offer similar services. I really don’t know.
If you have several stores, the temptation will be to start with the weakest one. Don’t fall into that trap for several reasons. First, your weakest store may be one you should have never opened in the first place, and nothing you can do will help it; and second, doing this manually is hard work and you’re going to need a success to make it worth your while. You don’t necessarily have to start with one of your top stores, but just don’t start with your weakest ones.
Exercise 1: Once you have your inventory list and sales transactions into a single spreadsheet, sort the sales by UPC code and start watching the number of times an item sells divided by the number of days from when you started. We call this the “turn rate”. Next, sub-total the units sold by UPC and re-sort by the turn rate in ascending order (from lowest to highest). This will tell you what’s selling and what’s not. You’ll need to learn how to create ‘pivot tables’ to do this. Don’t worry, you can do it with a couple of mouse clicks and it’s easy to learn how.
After you’ve been doing this for ninety days, lower the price on everything in the no-sale section (with the exception of the few seasonal items) and make plans to get rid of them. Be sure and isolate those items to ‘death row,’ so you can keep track of the items you started with. If they start turning when they get down to a penny profit, you probably don’t want to keep them anyway; however, if they start showing an acceptable profit somewhere along the way, you might reconsider taken them off death row. One of the biggest advantages of this exercise is determining the turn rate when a particular product starts making you money. I call this the ‘sweet spot’. The sweet spot may be higher on some products and lower on others.
It’s better to sell death row items at a loss than to throw them into the dumpster; and remember, keep dropping their prices until they’re gone. Do this for another ninety days and anything that’s left… take them out of the store and do whatever you want with them, but the important thing is get rid of them and don’t let your supplier bring any more death row items to your store.