Wednesday, May 4, 2011
The Case Against Category Management – Prelude to Exercise #4 -1
Small to medium-sized retailers appear to have reached an impasse. Directly in front of them is a vast chasm, so deep it’s hard to look at, much less take a chance on doing something drastic that might require a long-term commitment and a chance of falling into the abyss. I know, I’ve been there myself. Many of you are thinking, “If things don’t improve this year, I’ll just hang it up,” but don’t be discouraged. Bad times always bring with them amazing opportunities. You are never alone, because you competition is probably having the same problems as well. Like you, they may be caught up in a vicious cycle of making minor adjustments to get them through another month.
You can do better. Oftentimes, in cases like this, all you need is a fresh new idea to get your juices flowing, and difficult times create the perfect environment for it. Out of the blue comes something that involves nothing more than common sense and you immediately recognize it as a ‘no-brainer,’ because it’s logical, and if the idea costs you nothing and appears to have no long-lasting downside, that’s even better.
The most important ammunition you should carry with you into your preparation for Exercise #4, is the understanding that everything you need for this project is already in your possession. That’s right. If you have a computer and a way to get your sales transactions out of your POS and into a spreadsheet, you’re 99 percent there. The rest is a reasonably small amount of labor involved in manipulating the data. Automating these processes is what we do best, but you don’t have to spend one penny to test the validity of these principles yourself.
You should also begin with the assumption that 70 to 80 percent of the stuff in your stores is costing you money- hard earned cash, and a determination to do something about it. Indiscriminately adding and subtracting items from categories isn’t going to do it for you. You need a new approach.
Do you remember when you were a kid and found a present under the Christmas tree you had been wishing for all summer long? Could you use some of that enthusiasm right now? You have to start thinking like a kid again, using that spirit of taking a watch apart to see how it ticks, because what may be standing in your way of phenomenal success is too small for you to see without a microscope, and what you may gain is an epiphany, like the kind that’s driven all humankind to progress. In other words, stop listening to your peers and start thinking for yourself again.
The sum total of the profit or loss of every single item in your store, no matter how much or how little it might be, is what makes up the difference between a store that’s profitable and one that’s not. Oh sure, you can get lucky and find the right location. That’s probably how you picked your first store to begin with. You might even luck out and find a manager with integrity; one who works hard and has your best interest at heart. You may have even experienced tremendous growth by putting a deli in the right neighborhood, or stocking some products with buyers lined up just waiting to find a place to get them. But, we live in an environment that constantly changes, and when these successes dwindle out, as all successes of these types eventually do, what you have left is the hard, unarguable truth that the combined profit from all your item sales ultimately determines whether you are a success or a failure.
We’re going to be dealing with one small item to begin with, and once you’ve tuned up your first item it will give you the incentive to tackle another one, and then another, while deep-sixing the losers along the way. Remember, an item can be moving off the shelf as fast as you can buy more, but that doesn’t mean it’s made you any money.