Page 108 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 5: Managing Retailing in Good Times and Bad

Plan Inventories Notes

Once a sales plan has been developed, the next step is to build an inventory plan. “The question
to ask is this: ‘How much inventory do I need at the end of each month to support the next
month’s sales, as well as maintain effective merchandise displays?’” Hurlbut says. In some cases,
the ending inventory may need to support more than just one month of future sales.
It 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, Hurlbut says. Committing to
inventory too far in advance, and then bringing it in all in one shot is one of the surest ways to
find yourself over-stocked down the road.

Plan Discounts Ahead of Time

There are two primary types of discounts a retailer might take:

Promotional discounts during the season, and
Clearance markdowns as the season winds down.
Planning these discounts goes hand in hand with planning sales and inventories if you are using
retail value as your unit of measure. “A discount, just like a sale, decreases the retail value of
your inventory on hand,” Hurlbut says.
Keep in mind that any retailer needs to protect gross margins and cash flow when planning
clearance markdowns. “If you plan the date of the first seasonal markdown before the season
even begins,” Hurlbut says, “you can plan the inventory you want to have on hand at that point
in time, and thus your markdown percentage.
If you’ve planned sales by month, ending inventories by month, and discounts by month, it’s
easy to calculate how much inventory to bring in each month, by category. Hurlbut says retailers
need to bring in enough to cover that month’s planned sales, planned discounts, and planned
ending inventory, less the prior month’s planned ending inventory. “In this way, for example,
a buyer can know before a season begins how much inventory to plan on bringing in each
month of the season,” he says.

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Caution Once inventory receipts have been planned, the next step is to plan how to execute
those receipt plans. Ask yourself: How much of my receipt plan do I want to commit to
buying now, before the season begins?
“The pre-season commit percentage is the percentage of the season’s receipt plan that you
commit to before the season begins,” Hurlbut says. “It’s the bets you place before the season has
even opened up.” Every seasonal retailer has to place these bets. A seasonal retailer has to
commit to enough inventory to set displays and cover early sales, sales which are a critical early
indicator of the season to come. Similarly, a retailer frequently has to commit up front to
merchandise scheduled for delivery later in the season to assure they’ll have core stocks of key
items and categories at that critical time.

Managing Seasonal Sales: Take Markdowns Expeditiously

The process doesn’t end once the holidays are upon us. It’s a continuous process. In-season
planning is even more important. “As each week goes by, and sales trends begin to develop,
adjust your sales plans accordingly, and adjust inventory plans for those updated sales plans,”
Hurlbut says.

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