At the beginning of the season, the buyer must start with an Open To Buy budget to use as a guide for purchases. The budget can be stretched by holding some back to buy off price items as well as potential re-orders, during the season. That is where strategy enters. Planning how much to withhold at the beginning of the season can be a critical decision for the success of the entire season. Adjustments during the season are important but require a view of cash flow and OTB in making those changes. Often the strategy leads to effective negotiations at markets and during initial buys to assure the ability to get the best goods off price during the season.

Buying off price in season is challenging as well. Price should not be the only attraction. An off price buy that cuts into the store’s ability to sell its regular price merchandise can be counter- productive. The buyer should analyze if the merchandise fits the customers’ tastes and the store’s assortment plan. The buyer should determine if the purchase is something that would have been made at full price at the beginning of the season. Just because the price is low does not mean it is a good buy. It needs to sell. An added benefit to the purchase would be if the item drives sales of the other regularly priced merchandise. A good question to also ask is “Can the goods be brought into the store at the full price before issuing the markdowns?”

A further question is what do I do as the season progresses? Have my sell-throughs been weaker than expected and do I already own my own markdowns? Will an off price buy help my margins offset an erosion in my margins or be a potential drain on cash flow? Should I take the hit on my own goods and move on to the next season?

An additional strategy is to blend both regular goods and to sprinkle buys in from the Management One® Buying Service (MBS –exclusive to M1 clients) or to buy more opportunistically as you develop your assortment strategies.

There are a lot of variables to consider as you look to build your merchandise plan for the season.

Everything in retail becomes more complicated and interconnected as you continue to grow your business. The more guidelines that can be established, the easier and more profitable the journey becomes!

There are a few definite downsides to consignment goods that retailers
should be aware of:

• Sure, you can send the goods back, but that means you are paying double freight for stuff that didn’t sell.

• What is the cost to you to have your staff (or yourself) pack up these goods?

• What about accounting?  This definitely adds time to any accounting that you do to keep your books straight (not to mention your POS system!)

• Moving goods in and out this way can confuse your customer. A retail store has no better marketing than having the right goods at the right time.

We do recommend consigment goods when you are learning about a new line that is untested, or if you are having very difficult cash flow scenarios.  Of
course, difficult cash flow scenarios typically come from either buying too much inventory in the wrong classifications, or too much inventory in
general, and that’s what solid open to buy planning prevents (OK, a not-so-subtle hint, but I do believe in that strongly, so I had to stick that in there.)

The recession isn’t over yet, so these kinds of issues must be carefully studied to ensure positive cash flow and success.

Dan Jablons
Retail Smart Guys
www.retailsmartguys.com

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