Monday, May 9, 2011

The Case Against Category Management –Exercise #4 -2

Note: Forums such as LinkedIn do not allow the use of tables. The complete table for this page of the exercise can be found at:

By using the data from Exercises 1-3, I now have a spreadsheet of all items sold in one of our test stores during the past 31 days (March 2011). This particular store is branded, averages around $88,500/month in inside sales, and is located in a rural area on an interstate highway. Deli has been excluded from this exercise, merely because this location has not yet barcoded its deli items. They will, but they haven’t yet.

I can categorize the inventory in virtually any fashion, but for this case, I have decided to break the data-set into categories I specifically designed for this exercise. You, on the other hand, may choose a different set of categories for your specific store. We normally perform these services for our customers so they don’t have to.

First, I sorted the departments in five groups according to their turn rates per-day, highest to lowest (see table).

Soft Drinks – 416  
Cigarettes – 193   
Salty Snacks – 147
Candy & Mints – 129
Cookies, Cakes & Pastries – 101
Energy Drinks – 76
Fruit Drinks – 73 
Cigars – 60
Smokeless Tobacco – 58
Bottled Water – 49

Pretty Good:
Milk & Milk Products – 36
Health & Beauty – 33
Chewing Gum – 31
Tea – 28
Groceries – 22
Jerky & Links – 20
Ice Cream – 15
Nuts & Cashews – 13
Auto/Oil/Accessories – 11
Cigarette Lighters – 10

Coffee Flavored Drinks – 7
Pork Skins – 6
Bread – 6
Health Foods – 5

Why bother:
Maps & Magazines – 3
Household Products – 3
Other Tobacco Products – 3
Clothing – 2
Prepared Sandwiches (Not Including Deli) – 2
Stimulants – 2
Miscellaneous Items – 1
Cell Phone Accessories – 1
Flashlights & Batteries – 1

Office Supplies – 0.7
Pet Food – 0.5
DVD’s - 0.4
Toys - 0.2

This simple exercise that can be acquired from your POS tells me several things: I question the validity of carrying the departments marked “Disasters” in this store. The store sells one toy every five days, yet three-feet of one section is occupied by toys. DVDs are tossed into a bin for customers to dig through, impeding traffic in one aisle – two sales every five days; pet food takes up little room on a gondola, but maybe two brands of dog and cat food would suffice – one sale every two days. Office supplies occupy almost an entire section of one gondola - sales less than two every three days.

Obviously, customers who frequent this store buy predominantly Soft Drinks; Cigarettes; Salty Snacks; Candy & Mints; Cookies, Cakes & Pastries; Energy Drinks; Fruit Drinks; Cigars; Smokeless Tobacco; and Bottled Water… and in that order. Carrying items for the occasional shopper is costing this store a lot of money.

There are certainly other factors that come into play, such as: ‘If a customer comes in to buy a certain product and it’s not there, they will never come back into the store.’ But really, how much is that customer really costing you if it requires you to give up valuable selling space to items like these? Alternative: Keep a mixed shelf of occasional items in the storeroom. If a customer asks for it, you can produce it quickly.

Note: Inventory that is dead-dead (15% of the stock) is not reflected in this report. These consist of statuettes, trinkets, broken toys, bird houses, fishing supplies, etc. that have been in this store for a decade or more. Obviously, one of the challenges in the retail industry is to discourage unprofitable customers while gaining profitable customer loyalty. We just can’t be all things to all people and make a profit anymore.

To be continued….

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