The Power of New: Boosting Retail Success with Fresh Inventory

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Which sells the best: fresh new merchandise received just in time for the upcoming season or inventory left over from last year that you didn’t clear out because you had a complete run of sizes that you thought you could sell during the next season? With even a remedial understanding of the concepts of turnover and gross margin return on investment (GMROI) it should be easy to determine that new goods always trump old merchandise when it comes down to what will sell the fastest. The longer an item remains on the floor unsold the more it costs you—not only in real dollars but in opportunity costs. It might be more accurate to say “in missed opportunity costs.”

In the past we have discussed both turnover and GMROI in this column so I thought we could use a fresh approach to discuss “The Power of New!”

Early Career Experience

Early in my career as a merchandise manager I was assigned the task of improving the sales in the shoe department of the department store where I worked. Our shoe buyer was an older man who had been in the shoe business longer than I had been on the planet and we both knew it. In the process of reviewing our falling sales and heavy inventory position with him I convinced him that a tour of the stock room would be eye-opening for both of us.

The Stock Room Tour

And was it ever! I was looking for leftover sizes bad colors poor fitting models discontinued vendors and other slow sellers that we could immediately slash so we could generate cash and open-to-buy dollars to reorder fresh merchandise that was beginning to sell. He was proudly pointing out complete size runs of shoes that we had owned for longer than I am willing to admit in print. When I said we really needed everything on sale that had been in our store longer than six months with the exception of models that he could justify selling into the next season he looked at me like I had two heads.

Inventory and Sales Improvement

After the purging was complete our inventory had been reduced by about one third in both dollars and pairs. Sales volume in the department was growing at a rate of roughly 20% per month and margins were improving because we were selling newer goods at full price instead of out-of-season product that we were lucky to sell for “cost.”

Even today some shoe retailers are very skeptical when they hear me say that sales volume and margins can increase with a decrease in their inventory position. Did I mention that cash flow improves because new customers find their way to your store and existing customers buy more? I am currently working with several retailers in this exact situation.

A Successful Retailer Example

One merchant in particular comes to mind. The store is turning its women’s shoes 3.2 times all the while enjoying a 49.5% margin and a 15% sales increase over last year. Over 98% of this merchant’s inventory is less than three months old. My discussions with this store are different from others that I often have. There is no complaining about the poor economy how $4.00 per gallon gasoline is keeping customers from the stores what the competition is doing or which vendors didn’t ship this or that.

Instead we constantly review current fast-selling models for possible reorder and slow sellers that can be reduced in season with a small markdown. Remaining open-to-buy dollars are used for off-price goods to add freshness to the assortment and bolster the margin. The Power of New has changed this retailer’s total approach to his business.

Merchandising the New Versus the Old

Grocery retailers generally have a greater understanding of The Power of New goods than shoe retailers do. That shouldn’t be surprising; they have to otherwise they must throw their inventory away—literally. Next time you are in your neighborhood grocery store look at how the bananas are merchandised. Typically the newer fruit has a bit of…

Green on the tip.

These are the bananas that will be perfect to eat for the next few days.

On the other hand

The old bananas have already begun to show their age by virtue of the dark spots on the skin. These will soon be bagged and discounted as their value to the store is diminished and their only remaining purpose is to become banana bread.

The point is that no one comes into your store purposely looking for old merchandise unless they are solely bargain hunters. Shoppers especially women frequently shop stores looking for what is new.

Prove The Power of New to yourself.

Change a display in your store rearrange a fixture or redo the window and see what happens. Items you may have had for a while will begin to sell because they appear “new.”

The Power of New

Ritchie Sayner
JUL-AUG 08
continued on page 25
Ritchie Sayner

Ritchie Sayner

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