Specialty Retail Blog

Our Winning@Marketing team has been operating for 4 months now and working with these marketing experts has given me some real insights into many changes occurring all around us. I remember 45 years ago as a kid in my dad’s men’s store, most marketing was word of mouth and a weekly ad in the local paper. The strategy was to open a store, have merchandise available, put an ad in the local paper and wait on customers when they came in the shop. The world has turned upside down since then. Let’s look at a few of the changes that have affected or soon will affect your business future.

Advertising - THEN: Advertising used to be lofty claims and expensive fluff – jingles, sound bites or tag lines. NOW: Today information speaks to individuals. Successful businesses have a presence on the web. They engage in more cost effective marketing targeted to buyer personas and customized for their benefit. Blogs, article marketing, SEO, SEM and e-mail campaigns are replacing or at least augmenting traditional media advertising.

Promotion/Message Delivery - THEN: Retailers broadcasted their message by either advertisements in the newspaper or on radio or TV. Potential customers would see it, some of them would react and come into the store. NOW: With customers searching for everything on the internet, the broadcast has changed. It’s now the customers who broadcast what they want by searching the web, and it’s up to the retailers to “be there” when they are searching.

Wait on customers - THEN: People had limited choices and you knew your market and the competition. You got to know customers and you did not need a great effort to get them to come in; they came in anyway. Competition increased and businesses turned to direct mail and phone calls. NOW: Marketing is more about getting to know your customers than ever before. Getting to know them means what they do, what they like and who they really are. When they like you, they like your merchandise and like the buying process, they are loyal. People still buy from people who they like!

Hype - THEN: Marketing was about creating an external perception that was nirvana. “Drink our beer and the girls will flock to you!” “We offer the best service at the best price!” People have either become a lot smarter or are receiving a lot more choices. These ads don’t work. NOW: Reality matters. Teamwork and excellence are fundamental to your reputation and growing a business. Leadership needs to inspire staff and give direction. It’s all about what happens at the EAI (Employee Action Interface). When your marketing is about the truth, it creates buzz, word of mouth, loyalty and passion. The truth needs to be about creating partners of your customers and providing support as well as product.

Markdowns - THEN: Inventory that didn’t sell went on sale. What still remained was stored for next year. After three years if it didn’t sell, it went to the sidewalk sale. The bottom of the funnel was a charitable donation. NOW: Rising prices, expenses, competition and the internet have all put pressure on cash flow. Cash flow relies on not only buying the right goods but also the right amount. Measures and control of margins, maintained markup and sell through are critical. Budgeting, classification structure, inventory management and merchandise planning are fundamental to success today. Information, analysis and the right actions are no longer hallmarks of the best retailers, they are hallmarks of the survivors.

There are many other changes happening with the economy getting tougher every week. Winners will be the ones who move the market from people who shop with you to people who are passionate about your store. Winning@Business™ gets your team focused and effective, Winning@Retail™ increases cash flow and profits and Winning@Marketing™ drives new prospects to your door. Call Management One® to find out which processes work best for your business.

During it’s centennial year, Dick Hite of Norton Ditto decided to share one of the key aspects of his success. Since 1908 Norton Ditto has been the premier fashion retailer in Houston Texas. From the early days when the store’s typical customer arrived at the downtown store in a horse and buggy to the Texas oil boom of the eighties, Norton Ditto continued to grow. They opened a second store on Post Oak Blvd in the prestigious Galleria area, Houston’s shopping Mecca. Even with the growth in sales, like so many traditional retailers, Norton Ditto struggled to remain profitable and experienced some tough times. Mr. Dick Hite, the nephew of Ben and Sarah Ditto learned the retail business while working in the store from 1969 – 1984. In 1994 when he returned to the store, he became the principle owner and CEO, and took on the challenge to restore Norton Ditto to profitability and success to become today’s quintessential Men’s Clothier in Houston. Mr. Hite shares with us some important lessons that have contributed to Norton Ditto’s success.

Though well experienced in the retail industry as well as his experience in sales and marketing (he was a frequent speaker for the PGA), Mr. Hite looked outside his already strong staff for additional assistance to develop a management plan. One of the most important relationships he developed was with Management One®, one of today’s best retail management consulting groups, to develop a rapid ROI (Return On Investment) strategy to maximize the two largest assets of Norton Ditto: their people and inventory. Mr. Hite admits that while he and his staff had previously used management and merchandising plans from other consultants, the key to their success was “that Management One® not only provided better plans, but they were also able to motivate us to follow the plan. ”

It is no news that retailing is a cash flow business that must maximize sales and turn rates. By increasing turn rates, a retailer will improve cash flow, reduce markdowns, increase margins, and indirectly increase sales. Management One’s focus is unique in that it’s not solely directed toward tightening the belt (Open to Buy) to maximize turn rates. The focus is also on helping the retailer develop opportunities to expand the business by re-investing dollars that were previously overcommitted in non-performing classes into new lines and classifications with growth opportunities. Breaking out classifications so that growth can be tracked more effectively results in inventory dollars spent with a much better return.

As examples, Mr. Hite points to his neckwear and belt classifications that were performing poorly and are now very profitable classes with neckwear selling through at 85% (and trust this author who has been in his store - he still has a fabulous selection of ties!) Yet he acknowledges that sometimes the raw numbers don’t tell the whole story. He admits that if he looked at the numbers only he wouldn’t be carrying Oxxford suits, but he knows his market: one can’t be the premier haberdasher of Houston and not carry Oxxford suits. “It’s all about the right balance of merchandise,” explains Mr. Hite.

Marc Weiss, one of the principles of Management One®, calls Norton Ditto a “text book example” of what good controls and discipline can do for a retailer. Evan Wise, the other principle of Management One®, emphasizes that a key turning point is when a retailer deals with issues they can influence rather than making excuses due to circumstances beyond the retailer’s control. Inventory planning, balance and the right OTB at market is one area that every retailer must control. Mr. Hite applauds the responsiveness of Ed Scott, his Management One® consultant: “It’s much more than a monthly review of our merchandising plans; it’s the daily support that makes their service so valuable. Moreover, Management One® is in tune with and truly understands the retail business.”

In 2007 Smyth Retail became part of the Norton Ditto partnership by providing the underlying information system which effectively manages daily transactions and provides important reporting and analysis tools, including a direct interface to the Management One® “Winning @Retail” merchandising planning system. The entire Smyth organization was so committed to helping their POS customers get the most from the data their system collects, they provided the direct interface to Management One at no added charge to customers. That interface makes it easy for Norton Ditto to send the information to Management One quickly, accurately and easily over the Internet. Management One processes the information and the report can be returned over the Internet as well. This seamless and efficient process provides Norton Ditto with timely and accurate analysis of their business. Mr. Hite affirms there is “no doubt that the timeliness and accuracy of better reporting tools provide the information to quantify and qualify management’s decisions. ” The ability to get a snapshot of the status at any time during the month using Management One’s Plan-On-Demand (POD) feature is important to helping us reach the planned goals established for the month.”

Mr. Hite sums it up best: “There is no doubt that through effective planning and execution that we have increased turn rates, margins and sales.”

And it usually isn’t. Special offers, dating, and incentives tied to minimums appear to be good on the front side but in reality they typically sound better than they are. Vendors make these offers, not because they are good for the retailer, but because they are good for the vendor. That in itself should be a sign of trouble!

Let’s start with invoice dating. In some industries and with some seasonal products dating can be an advantage. However you can be fooled into overbuying knowing that you do not have to pay for these goods for 6 months or more. Here, merchandise planning can make a huge difference, as you will only commit to what you can sell profitably. If you have carry over inventory that is still viable for the next season; are you deducting that inventory against your future open- to-buy? The bigger question is why do you even have carry over inventory?

Dating typically causes retailers to overbuy and then as the season unfolds they have limited or no dollars to spend on new goods. Dating can cause you to over commit to one vendor. If that vendor is not selling and another vendor is selling, you have managed to box yourself into a corner. It is always important to leave yourself open- to- buys, especially in key classifications.

Dating can create a false sense of security. You will eventually have to pay for those goods; if they do not sell it would be a shame to pay those invoices on the profits of other vendors. If you do use dating, especially on seasonal goods that arrive early, it would be prudent to set aside the cost of goods on each item as it is sold and keep it in a separate account, possibly interest bearing. Some banks have great business accounts that allow you to keep an almost zero balance in your checking account and a savings account attached. . When the invoice is due you have the money saved, with interest! Simply sweep the funds necessary to cover the invoice from savings to checking.

Incentives tied to minimums. If the minimums force you to overbuy then don’t do it! The 10 or 15% will not be enough to counter the markdowns you will take to unload an overbuy. When you go to an all you can eat buffet, you eat more than you need and then it is diet time. If you hate dieting then pass on the buffet. However in your store a diet can mean markdowns and thus loss of profit. It also creates a squeeze on cash because those markdown goods will need to be replaced by stock that you can sell at full retail. Incentives tied to minimums must fulfill your needs and not the Vendor’s.

There are other incentives where the vendor offers discounts on reorders based on an upfront commitment. This can work if the open to buy dollars for that vendor match your overall assortment plan. Otherwise take a pass.

If you decide to get involved with Vendor incentives, that does not preclude you from negotiating your own terms, conditions and discounts. Hot vendors do not need to give anything away. Merchandise that is sold with pre season incentives may mean the vendor is in a position to negotiate. Remember, as the buyer, you have great leverage. Do not be afraid to use it. Smaller retailers need to remember that they are important; as they typically are the most profitable business a vendor can write. Small retailers do not beat up vendors for price incentives and discounts like larger companies.

The best incentives you can get are the ones you negotiate on your own terms. The first rule my father taught me in negotiating was, “There are 3 prices: The line price, the incentive price, and the price you pay. Make sure the price you pay is the lowest you can get, then go back and lower it again.

Copyright Management One® 2007 Written by Marc Weiss

Top Down Bottom Up Interactive

These are three different types of inventory planning that retail business can engage in. The first is top down planning. In this scenario decisions are made at a high level and drilled down in to the planning process. The downside to this is that planning is driven based on management’™s expectations or even the desired profits needed to show stakeholders. Hopefully it would be guided in some measure on past performance. Forced increases or planned decreases are not necessarily driven by market conditions. Decisions are made at a high level where there may be significant distance between the decision maker and the customer.

The second option for planning is bottom up or planning that is dictated by how the customer votes with his/her purchases. This planning reacts to current and past customer demand and is more reflective of current market trends. The downside to this type of planning is that it can miss opportunities that the market has not yet seen. It omits the art side of the buy enabling merchants to take necessary risks to grow their business.

The third form of planning is interactive. It is a blend of top down and bottom up planning. Bottom up planning is at the core of this but it also allows for some guidance from management to make top down decisions. Management One™ believes in a “high tech” “high touch” approach to planning that more closely resembles interactive planning.

How interactive planning works at Management One™

The High Tech ‘“ High Touch approach to Inventory Planning

• Bottom up planning is based on both short term and long term trends.
• Analysis is based on opening up opportunities. Forecasting logic reacts to current trends and drives revenue forecasts to feed opportunities and starve problems.
• Trained planners utilize national and regional trends to impact decision making.
• Affiliates and clients feedback valuable information to planners to help maximize opportunities.
• ‘What if’™ scenarios are developed for risk-taking to grow specific areas of the business.
• Proper balance of inventory is achieved through an effective classification structure
• Local events that are strong enough to influence the business are considered. For example the strength of a football schedule in a college town can have a dramatic impact on the plan.
• Turn rates for clients are based on location, type of class, assortments, cash flow considerations, volume and profit potential.
• Markdowns are considered as a healthy part of planning.
• Gross Margin and Gross margin dollars are considered as part of a holistic approach to planning. Profit potential that exists in every store is carefully protected so that classes that are essential to the maintenance of the business are not sacrificed.
• Inventory flow is based on peaking inventories at the right time and maintaining a fresh flow of inventory to ensure customer demand.
• Flow and balance are key ingredients in growing sales and generating profitable cash flow.
• Reporting that allows users to make decisions on inventory performance, cash flow planning and to develop meaningful merchandise strategies.
• Sales forecasting that is dependable and allows management the ability to budget effectively.