In his article, “The Markdown Blues,” Ted Hurlbut at Inc.com says the root cause of excessive markdowns can almost always be traced back to the lack of adequate pre-season planning and in-season adjustments to those plans.
What exactly should you plan? How should you go about preparing these plans? And what you do once they’re completed?
Hurlbut offers the following tips:
1. Plan sales.
“In order to effectively manage your inventory, you need to know what you expect to sell,” says Hurlbut. “For larger retailers that are stocking many SKU’s, sophisticated sales forecasting software make sense. For many small retailers, however, developing a simple spreadsheet from your POS sales history, by month by key category, is most cost effective.
“Start with last years histories, and make adjustments for unusual events, such as weather, out of stocks, one-time promotions, etc. Then factor in the appropriate increase or decrease based on your current sales trend and your reading of the sales potential for the category for the upcoming season.
“Finally, for larger categories, it may make sense to break the sales plan down by sub-categories, styles or vendors.”
2. Plan inventories.
“In makes little sense to bring in more inventory at any given time than you need to set your displays, support your planned sales until the next vendor delivery, and provide a safety stock in the event of an unexpected sales spike or a late delivery,” says Hurlbut.
“Committing to inventory too far in advance, and then bringing it all in one shot is one of the surest ways to find yourself over-stocked down the road. For many small retailers, the best way to plan inventories is to plan to have enough on hand at month end to cover the next two or three months sales.”
3. Plan inventory receipts.
“If you’ve planned sales by month, band ending inventories by month, it’s easy to calculate how much inventory to bring in each month. You need to bring in enough to cover that month’s sales plan and ending inventory, less the prior months ending inventory. In this way, a buyer can know in January, when preparing for the spring season, for example, how much inventory to plan on bringing in each month of the season.”
4. Plan markdowns.
“Planning markdowns goes hand in hand with planning inventories. If you plan the date of the first seasonal markdown before the season even begins, you can plan the inventory you want to have on hand at that point in time, and thus your markdown percentage, as well as your markdown sales before your second markdown, as well as all subsequent markdowns.”
5. Plan dynamically.
“Once you’ve completed your preseason planning, don’t put it in a drawer never to be seen again. Use that plan as a dynamic tool to track the progress of the season.
“As each week goes by, and sales trends begin to develop, adjust future sales plans accordingly, and adjust inventory plans for those updated sales plans. If sales are exceeding plan, you want to be sure you have the inventory to keep the momentum going.
“Conversely, if sales are coming up short of a plan the sooner you adjust your inventory plans, and thus your scheduled receipts, the less likely you are to end up with excess inventory that needs to be marked down at season’s end.”