Tuesday, May 22, 2012

Critical Success Factors In Buying and Running a Store #3- Part 2

After analyzing the disposition of inventory in our test store, I have gathered the following data:

There are 2,915 items for sale. Without regards to profitability, 0.27% account for more than 100 sales per week, 0.89% produce 50-99 sales per week, 2.30% produce 25-49 sales per week, 7.51% produce 10-24 sales per week, 10.39% produce 5-9 sales per week, 35.35% produce 1-4 sales per week, and 5.18% (151) are just dead. I call this the INVENTORY MOVEMENT FINGERPRINT, and every store has one.

The 151 products in the DEAD group provide wonderful opportunities. Not only is there potential to turn these freeloaders into CASH, they make it possible for us to play the Walmart game. How? Simple! We mark these products down, slash their prices, and make a big deal of it.

Apparently, nobody wants to buy these couch-potatoes, right? So let’s put red tags on them and give our customers the IMPRESSION that we have everyday low prices throughout the store. Don’t make the mistake of putting them all together on a clearance table. Clearance tables scream, “Junk that nobody wants.” Leave them scattered as they are, so customers will encounter these ‘bargains’ everywhere they go, in much the same way ‘private label’  items are placed among the name brand items in grocery stores.

Retailers refer to the above tactic as “High-Low Pricing”. It helps to clear slow-movers, while at the same time, building retail traffic. The by-product is an increase in revenues, employing both pricing and promotion.

Studies have proven, retailers using High-Low-Pricing methods are more profitable than those that maintain a fixed price, and changing prices once or twice a year definitely entitles the items in this store to belong in the fixed-price category.  

Do you see the correlation between this idea and the story about Abe the butcher in the previous post? Schultz was out-of-stock on pork chops, but the perception held by his customers was that Schultz has lower prices than Abe. I am not suggesting you advertise out-of-stock items, no, far from it. However, out-of-stocks and dead inventory have similar characteristics. Neither is making you money by any measure.

‘Pricing’ has a great deal to do with how your customers perceive your store. Your pricing strategy creates a PRICING FINGERPRINT, and every store has one of those too. If your pricing fingerprint is too high, it will negatively affect your traffic; if it is too low, it may not generate enough cash to cover the costs associated with your business.

In a general sense, customer price sensitivity during the shopping process in c-stores is low. Most stores are missing the boat here. In an environment where price sensitivity is low, you have a greater opportunity to control your pricing. Price sensitivity at the check-out stand is moderate. In other words, customers feel it in their wallet, but not so much as they would while buying their weekly groceries at Walmart

BUT you must have the proper decision-support tools to manage inventory at the item level. They’re out there, and the market for these tools is growing stronger every day.

One last thought on this issue before I close: If we are going to categorize our inventory, why not categorize by movement rather than by type of product?

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