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Patricia M. Johnson & Richard F. Outcalt
Retail Strategists and Retail Turnaround Experts
Co-Founders, The Retail Owners Institute® • Business Strata:G®
Christmas is two weeks away.
Time to focus on the “science” part, the numbers part, of “the art and science of inventory management.” The march has begun toward a vital, critical touchstone – your 12/31 targeted ending inventory level.
On that date, you must have appropriate inventory levels and mix for the months ahead – plus the cash to pay for it!
This is the moment an “ending inventory enforcer” must step up. And here's a quick and easy – and free! – way to know what that target ending inventory number should be. By department. It's all based on your turnover rate for each department.
Here's how it works. For each department:
Convert the turnover rate into months of supply.
For example, 4 turns divided into 12 months in a year equals 3 "months of supply of inventory @retail", what we call "one turn's worth." (Similarly, 3 turns divided into 12 months equals 4 “months of supply @retail”, and so on.)
Add up "one turn's worth" of sales. For example, at 4 turns: add up your expected sales volume for the up-coming 3 months: January plus February plus March for that department. That represents the "one turn's worth" of inventory @retail at 4 turns that you should have on hand on December 31. (And no more than that!)
Do this for each department. Now you have a targeted inventory level @retail – "one turn's worth" – for December 31 for each department.
Now, total it up.
Compare that target with your inventory on hand @retail right now, plus all on-orders, minus realistic sales. Close counts, but get an estimate now.
And now, the crucial test:
Are you on track to hit the year-end inventory target?
If not, what adjustments do you need to make? Like much sharper markdowns? Or canceling or delaying orders? Or...??
Nice to have that estimate now, right?
A worthy enforcer (ahem, that would be YOU!) will monitor this process two/three times a week through December.
Customers are available! Now!
But time is running out. Tick tock. Tick tock. Do not miss out on this golden opportunity!
As the old adage goes, "If you don't know where you're going, any road will get you there." Having a targeted ending inventory is the answer for "where are you going?"
And you will be much happier when you get there!
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This is so important, that if you have any questions, contact us directly. Always happy to help.
-- Pat & Dick
Tips • Tactics • Strategic Insights • Commentary
FYI, each week's From The Co-Founders commentary is posted on The ROI site: Perspectives: The Co-Founders.
These short but pithy musings are all very quick reads. You know, retailer-friendly!
Available online, 24/7, free for all. ➡️
FREE Access • Webinar Of The Week
In this lively Webinar of the Week, Pat Johnson and Dick Outcalt, Co-Founders of The ROI, show how any retailer, anywhere, on your own, can know in advance whether you are likely to be profitable.
After all, why work that hard all year, only to end up with a loss?
Here's how savvy retailers can look ahead to avoid losses:
Step away from the to-the-penny details of your P&L. Cluster those dozens of separate line items into useful management categories.
See how - and why - Cost of Goods Sold affects profit.
See how to determine your best guesstimates for sales, margins, and expenses. (Close counts!)
See how The ROI's online PROFITS Forecaster, one of The ROI's proprietary projecting calculators for retailers, lets you do your own "What would happen if I...?" projections – and on-going adjustments – in just minutes. Anytime you want, 24/7.
Even better, with its built-in TREND TRACKER, you can easily monitor your progress each month.
Ready to put your business on track for a profitable year? Be sure to take advantage of this empowering session.
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The prospect of tariffs from 10% to 60% being imposed on goods from Canada, Mexico, China, and other countries by the incoming Trump Administration is certainly contributing to headlines and attention. Another flexibility test for retailers.
Some retailers have seized on the uncertainty that has resulted. They are using the fear of tariff costs leading to higher retail prices to heighten the shoppers' sense of urgency.
"Companies are pouncing at a moment when fear and uncertainty are on the rise and consumer spending is showing signs of weakness," reported The Wall Street Journal.*
Social media provides a ready platform for spreading the fear of potentially higher prices:
"Pre-Tariff Sale! Order now before prices double."
"Lock in our current prices now!"
“The very same items you are seeing now will be double the price once the tariffs kick in."
Meanwhile, others on social media are feeding into the tariff frenzy by urging people to buy their favorite products in bulk now. Some TikTok influencers are offering stockpiling guidelines on how long everyday items like makeup and shampoos can be stored.
Whether or not tariffs will be imposed, and at what rates, and when is very uncertain. And if imposed, how long they might remain in place is likely to be short-lived, according to some.
In the meantime, urging customers to buy more now to save later is, of course, a time-honored sales technique. And there’s nothing wrong with that.
So, this just may be the time to unleash your inner merchant!
Heighten the sense of urgency for your shoppers. Use the spectre ("veiled threat") of much higher prices looming after January 20 to...
Close more and larger sales now.
Hold prices longer in December. ("These prices will be like a big discount come January, February...")
And importantly, adjust – that is, reduce – your buying plans for 2025! (Your shoppers will be working their way through their stockpiles, remember?)
In retail especially, change IS the name of the game. Adjusting to uncertainty is an everyday flexibility test for retailers.
As one owner's email to all employees noted, "I don't think this will be the last curveball thrown in our direction."
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* "Retailers Play Up Tariff Fears To Lure Reluctant Shoppers." Suzanne Vranica, The Wall Street Journal, November 29, 2024.
* "New Tariffs Concern Some Small Firms." Ruth Simon, The Wall Street Journal, December 2, 2024.
We think it's a crime: too many independent retailers discover they've had a loss only when their financial statements arrive...after the fact.
That means they've missed any opportunity to make needed adjustments in advance to avert - or at least reduce - that loss. Yikes!
Why does this happen?
Some retailers lack the knowledge, or confidence, that they CAN manage and control their own profitability. "Who knew?"
Others think it is something their accountant, or bookkeeper, or CFO is supposed to do. But, those people are trained financial historians, tallying up what has happened in the past.
Many other retailers are victimized by financial statements that show operating expenses alphabetized (!) in excruciating detail.
Now, thanks to The ROI, those days are over!
In this lively Webinar Of The Week, Pat Johnson and Dick Outcalt, Co-Founders of The ROI, show how any retailer, anywhere, can know in advance whether or not they will be profitable!
First, see how The ROI's online PROFITS Forecaster lets you do your own "How will it turn out?" projections - in just minutes. Anytime you want, 24/7. All online; nothing to download or install.
Then, see how its new built-in PROFITS TREND TRACKER...
makes it easy to monitor your progress each month
lets you discover whether you are trending in a "favorable" or "unfavorable" direction
pinpoints trouble spots or growth opportunities in your operation, giving you time to make adjustments!
This fast-paced session is free for everyone to access, and is packed with consulting tips and insights. See for yourself how The ROI's PROFITS Forecaster & TREND TRACKER can put you in control of your business.
Running a retail business means making countless decisions every day—some big, some small, all critical.
That’s why The Retail Owners Institute® focuses solely on helping retail owners "Turn on their financial headlights!" more here
The Retail Owners Institute® has been empowering retailers since 1999 to "Turn on their financial headlights!" Our tools and resources are trusted by thousands of store owners to help grow profitable, resilient businesses.