Specialty Retail Blog

Making good retail decisions is about more than just gathering lots of data. It requires a gift to tease trends and insight from that haystack of data. How many transactions are there in your business each month? How many orders are placed each season? How many markdowns are taken? With the POS system collecting all this data, there are many opportunities for random patterns to appear.

Forecasting the result by finding the trend is what makes for better decisions and a successful business. Hindsight is 20/20. It is much easier to pick out the trend when you can work backward from the result. But that’s too late.

When retailers try to identify the trends, there is a tendency to put way too much emphasis on the immediate past and last year. Ask a menswear retailer how business is and his answer is shaded by how long it has been since he sold the last suit. Every retailer I know looks at sales and compares to last year to determine an overwhelming amount of data upon which his decisions are made. Often, these analyses are fueled by emotion and lack rigor and objectivity, leading to panic rather than planning.

This is especially true when it comes to buying decisions. When retailers buy without the knowledge the data is capable of providing, the decisions made at market turn to panic when all that merchandise shows up in the store. Then the task of digging out from the bad decisions falls to the sales staff! More often than not the bad decisions come in the form of overbuying and panic can be seen in the form of markdowns. The more inventory the higher the sales goals must be to turn a profit and pay for the goods. When those sales goals are higher than reality it leads to a situation where the sales staff cannot be successful. That then deteriorates into a stressful environment that affects customers, staff retention and the success of the business. The flip side is when the bad decision is to under buy the merchandise needed in a key classification. The sales staff is forced to sell when there is not sufficient selection or merchandise to sell. When you talk about stress, there is nothing more stressful for a salesperson than watching a customer walk out the door toward the competition!

Objective, statistical, and professional analysis of all the events and data points that occur during the month gives a much clearer forecast of the trends. Statistical analysis of the data based on classification information allows retailers to base decisions on a proper weighting of the signals the customers are trying to tell the retailer with each purchase. The objective techniques allow the analyst to separate the signal and trend from the noise and randomness. If the last suit was sold 10 minutes ago but it was the only one for the month, business is not necessarily great!

There are certainly different statistical methods and a huge variation in the quality of the analysts who can connect the dots into a useful picture. At Management One® we have a team of 10 professional planners that review and adjust each classification based on an accurate forecast of future demand for that classification in each location. There is a planner for every 5 retail consultants. Each consultant is trained to analyze the output from the planner to be certain the right decisions are made by his clients. A retailer that uses subjective or inferior analytical techniques must HOPE he can make the right buying decisions every season. In retail today, HOPE is not a great strategy.

Management One’s Merchandise Planning to Help Your Business “Win @ Retail” article
featured in Point of Sale news.

One of our affiliates laid this term on me and it really made sense. Too often we find retailers focused solely and primarily on sales. Sure, sales are important. But not nearly as important as cash when you have bills to pay. Once a retailer begins to focus on cash there are many decisions that are made differently. Let’s look at a few examples.

Every classification has its own demand level that is different every month and every season. It changes for each location. Every year it is different as the retail market ebbs and flows. Understanding the right demand level to buy for is critical to generating cash.  Finding the right level not only depends on knowing the demand but also applying the right level of inventory to provide the breadth and depth of merchandise to meet the demand without having more than is needed. When a retailer buys too much, more sales might be generated but the cash expected from those sales is given back in the form of markdowns.  When there is too little, sales are lost and often the customers seeking the items are sent to the competition.  Just like the baby bear in the story of the 3 bears was seeking the porridge that was not too hot and not too cold, retailers seeking more cash need to buy inventory in amounts that are just right.  When we see excessive stockouts or markdowns that are too high, that is the time we launch a cash seeking missile.

EXPENSES

Every retailer has expenses in order to keep the doors open. When those expenses are excessive, vital cash needed to pay for merchandise and other bills is lost.  When the expenses are too tightly controlled, needed expenditures on things like marketing, advertising, or commissions might stifle the ability to generate sales and cash.  A break even analysis and expense budget are needed in every retail business to provide the background for controlling expenses.  We have benchmarks for every type of business and when we see deviations, we begin the launch cycle to send up another cash seeking missile.

One fundamental of retail that has evolved as the retail becomes more complex is the necessity to split the duties of planner and buyer. The strategy of the buyer being also responsible for planning duties brings complications. First is that it erases a level of objectivity. Another  is that the time planning takes away from doing the buying process well.

There is so much to the process and job of buying and so much to the process and job of  planning that productivity is actually lost when trying to increase  productivity by combining the responsibilities.  The success of retail depends on buyers filling the shelves with the right amount of the right merchandise that is constantly fresh and compelling. To do that Buyers must follow trends; learn the market; learn the customers; understand the vendors; negotiate terms; follow merchandise through the season in the stores or on line; FOLLOW THE OPEN TO BUY BUDGET AND MERCHANDISE PLAN and then do it all again next season.  This takes a left-brain right-brain individual.

Planners on the other hand must be analytical wizards that can understand statistical trending; use mathematical modeling; analyze data; apply the right stock to sales ratio for the right season, category and point during the season; communicate with buyers and sellers for input; and find the signal in all the noise generated by a retail business each month and captured by the POS system and deliver an accurate OPEN TO BUY  budget to the buyers.

All that being said, I am skeptical that both positions require the same talents. One of the reasons Management One® is so successful with clients is we have planning expertise and take over that responsibility effectively. That allows  the buyers to just do the job of buying. That allows them to be so much more productive that sales grow; inventory shrinks and cash increases.

A great retail staff is not simply born. Creating a great staff is the responsibility of the owner and managers. When a manager blames an employee for not doing a job correctly, three fingers point right back at the manager. A Management One® affiliate is a partner in the process for clients who want to turn those kinds of accusations or blame into positive learning examples.

First is a proper job description. There are many important keys to developing effective job descriptions but the minimum must include the responsibilities, the tasks and the expectations of results to be achieved. Most retailers have job descriptions for the many jobs that must be done. The job description is specific to the job and not the person. Independent specialty retailers must have employees wearing many hats. That means that each person can have several job descriptions.

Hiring is a critical part of building a great staff. If you don’t have the right materials, the finished product won’t perform as you expect. That is the same for building a house as it is for building a great staff. Hiring is an important process that goes way beyond posting a job description and hiring the first person who wants the job.

Once the job is filled, orientation, training and mentoring are important to make the person productive as quickly as possible. This goes beyond on the job training. When managers rely on existing employees to teach the new employees, bad habits and suboptimal practices and information are often downloaded to the new hires. A documented training process allows the owner and managers to be certain that the correct information is being delivered. As new insights are learned, they can be incorporated into the training regimen for future employees to benefit.

Training is the next piece to this staff construction process. This exceeds the initial training to get a person going. This training covers key aspects of improving the work performance and may be purchased training or it can be delivered by the Management One® affiliate. There are many training programs available, although that does not mean they are all effective or even good programs. Always find out from other retailers who have attended which are worth the cost. Your affiliate can also offer valuable insights.

Many other aspects of retail are important in building a great staff. Compensation packages and motivation methods are important. Performance previews and reviews are critical to success. Effective listening to employees and training managers to enhance the future without finding blame for the past are all important components to building a successful, great staff in your store.

“The greatest gifts you can give your children are the roots of responsibility and the wings of independence.”
– Denis Waitley

Thursday, February 21 at 12:00PM EST/ 9:00AM PST, Marc Weiss will be presenting the webinar Retail is Detail – The Sum of Doing a Lot of Little Things Right.

Too often retailers look for a magic wand to fix or grow their business. There are times when an item or a vendor gets so hot that it can transform a business, at least temporarily. However, these instances are not the building blocks of growing a successful business and are not long-term solutions. In this webinar, we will explore how paying attention to the details in your business can have a profound and meaningful impact on increased sales, profit, cash and market share.

Join us and hear real examples of what your fellow retailers are doing by tending to the “acres of diamonds” in their own backyard. “Acres of Diamonds” is a famous speech delivered over 6,000 times worldwide by Russell Conwell, the central concept being that all good things are present in your community and that the potential for opportunity is right in front of you.

For more information on participating in the webinar, contact Fred Pylman at fred@management-one.com or call 616-901-9617. Previous webinars can also be downloaded by contacting Fred.
In the Spotlight

Retail Smart Guys’ (CA) client Surfside Sports has been named TransWorld Business Awards CA Regional Retailer of the Year, Overall Retailer of the Year and Hardgoods Retailer of the Year.

By Evan Wise

I am reading Nate Silver’s new book,  “The Signal and the Noise” so I will take you through some of my key observations from this well written book.  I will do that in a series of blog postings that allow me to pontificate based on his observations. Always keep in mind that the observations are his and the hard part about writing a meaningful post is to start with meaningful observations.  In this case, unfortunately, I can take no credit for the observations.

“ our models are simplifications of the world…often associated with very precise-seeming predictions that are not at all accurate”  (para 3 and 5, page 45)

This is one of the most profound observations in the book.  How do you know which prediction is correct?  In the 2012 election Fox news had Romney in a landslide while MSNBC had the election very close but slightly favoring Obama.  Nate Silver, a true statistician, correctly predicted the result in EVERY state in the union and accurately predicted the outcome of the election.

Each of these agencies had a model they used to simplify the world and make a prediction.  Each of these reported their results with what would appear to be the same accuracy. Any time a model is used to simplify the world assumptions are made in order to produce an estimate.  The key is finding the best model.  In 2016 I am only looking at Nate Silver’s predictions.  (he was correct in 49 of 50 states in 2008)

When it comes to OTB planning the accuracy and usefulness of the data depends on the accuracy of the sales forecast for each category or classification of merchandise.  You can not know which forecast is most accurate until after the fact. A POS system can forecast sales to the penny but still be thousands of dollars off. Using LY and making an adjustment is an educated guess at best.  Even hiring an outside service to do your planning does not assure that you are getting a firm that has a good model, makes the right assumptions, simplifies the operation in the right manner and gives you the right forecast.

Merchandise planning is a lot more than just sales forecasting. But if you start with the wrong sales forecast, the rest of the process is meaningless.  The best way to determine if you are using the right planning process is to monitor the results.

1.       Are you following the plan? If you don’t follow the advice the plan can not help you.

2.       Are you getting the right advice based on the plan output? If you have a great plan but draw the wrong conclusions that lead to the wrong actions you will not get the right results.

3.       Is the philosophy applied to the merchandise plan one that will grow your business?  Are the right trends being input? Is the plan aggressive in the right areas to grow the business?  Is the plan giving not only the right OTB budget but the right markdowns, freshness, and sell through?

4.       Are you getting the right Key Performance Indicators so that you can measure your business?  If you can’t measure it you can’t grow it.

The right merchandise planning means so much to a retailer’s success, peace of mind, pride and profit.  The wrong one can destroy those things.  Just because a forecast SEEMS accurate does not mean it is.  Only time will tell. Too much time and it might be too late!

Another in a series of posts discussing Nate Silver’s observations in “The Signal and the Noise.”

“How do we reconcile the need to use the past as a guide with our recognition that the future may be different?”  (para 2 page 16)

The past is a window to the future is the general belief and is very often true.  But what about the past is contains the information about the future. Certainly there is a lot of change in our world. Retailers like to look to the past to benchmark the progress they have made. Comparing sales and profits to LY is a favorite pastime.  The real question is how relevant is LY to Next Year (NY)?

If you planned 2009 based on LY you would be going down the wrong path.  The truth is that LY is only a very rough indicator of NY and those retailers that rely on it for sales forecasting take a huge risk. Like a broken clock that is right twice a day, the estimate may work some of the time.  Some of the time is no longer good enough.
Statistics are designed to apply the proper weighting to many RELEVANT aspects of the past to predict the future. Even with the best statistics, there is always a surprise factor to evaluate.  The best predictions always contain that degree of error.  A 90% chance of rain acknowledges a 10% error potential or surprise factor.  A poll predicting a candidates votes has a margin of error attached.

The real question is whether you let the possibility that the projection might be off to keep you from using it all of the time.  The overwhelming answer should be yes.   We must be aware of the difference between the population and the sample.  Even though the statistics is correct for the whole population, it may be wrong on any individual or sample.  Just because the prediction might be wrong this month, overall it will be more right than wrong.  The more right the prediction, the more valuable the insights it offers.

We work hard to make our predictions as accurate as possible. Our plans show the prediction and the actual figures each month so clients can see how we are doing.  We are always working to improve the algorithms and technology to make our predictions  more accurate.  Good merchandise planning  is essential to making the best decisions for your business.

Another in a series of posts discussing Nate Silver’s observations in “The Signal and the Noise.”
“partisan beliefs can upset the equation in which more information will bring us closer to the truth”
One of the problems with our politics today is that there are so many sources of news, information and analysis that we tend to seek the ones that most closely match our existing beliefs.  We then only get those beliefs reinforced rather than challenged. Soon the whole group is thinking the same way.  The group actually begins to create its own reality which is very dangerous.

This happens to retailers all the time. Everyone in the store loves the store. Everyone looks at the last buy and loves the merchandise.  One employee tells the buyer and then the owner and soon everyone is convinced they are the best store since Adam sold Eve an apple.

This Groupthink is a normal occurrence even among scientists, statisticians and accountants.  These people work with data but when the data is approached with an existing bias the conclusions can be skewed toward groupthink. Getting a different view of the data is critical to finding the signal ( truth) in the noise (all the data).

In the process of establishing our planning process we were aware of the importance of avoiding groupthink.  Our affiliates are independent from Management One® so that they bring a different and independent perspective.  Every plan is reviewed by our team of professional planners to bring another view of the data to the retailer. (we do not allow a planner to review plans for a client of theirs).  A retailer that hires Management One® expects to be challenged. The also expect to get input from the network of clients that provides a broad perspective on the retail world.

Certainly the final decision is the buyers or the owners however having the analysis from several viewpoints will help the decision be more effective.  More effective decisions lead to a more successful business.  That is what Management One® is all about.