How do you eat an elephant?   You don’t want to choke on too much inventory, or for that matter too little inventory. So as you know, you eat an elephant one bite at a time.  The same goes for your business. Looking at your business can be like looking at an elephant; too big to take on and control.

When you break down your inventory into bite size pieces all of a sudden it begins to make more sense. We call those pieces classifications. By breaking a store down into classifications it is easier to determine what is selling and what is not, it is easier to buy goods and know when to mark them down. Classifications tell us a lot of things about our business one bite at a time.

The single most important reason to maintain a good classification structure is simple. Customers buy by class. Period. A shopper comes in your store and they are thinking about purchasing a board short, or a swimsuit, or a tee. They might want a Hurley, or a Bill a Bong, or a Volcom, but their first motivation is the class. That is one of the reasons why buyers look at class first and then develop their assortment by vendor.

Trends evolve around classifications. Tees, novelty tees, graphic tees, board shorts, dresses, sport shoes, sandals, etc. Each of these has its own ebb and flow. What is the demand for each classification? Let’s say you want to cut your receiving budget by 20% because you believe your sales will be down by 20% for the next period. Sweeping cuts like that can kill a business. Some classes where demand is thin may need to cut by 50%; other classes where demand is strong may need to be increased by 25 to 30 %. If you cut emerging and growing classes you will call serious harm to your business.

Another way to look at it is that being under stocked in key classes forces your customers to your competition.  You have heard the expression “to have what the customer wants when they want it and at the right price is the key to successful retailing.” That all starts with an effective and manageable class structure.

Manageability is key; too many classifications is impossible to keep up and too few diminishes your ability to read demand. For example Men’s sportswear is too broad a category to plan. It is composed of tees, pants, shorts, board shorts, woven’s, knits, etc. Every one of those classes has its own life span and profit center. If you only had a budget for sportswear, then what would be the best way to allocate those dollars? Furthermore each one of those categories has its own initial markup, its own markdowns and its own turn rate.

Too many classifications are difficult to manage and you spend more time micro-managing your business than taking the time to look down from a higher level.

These are a few highlights of why classifications are the underpinning of any retail business. Review your classifications and make sure they make sense for you and your customers.