SNEWS® Retail Merchandising Training 101: History and Analysis

By now you have most of the essential building blocks of planning and managing your sales and inventory under your belts. While we know you'd rather be heading out for a paddle, trail run or to the climbing gym, you still have work to do…so sit back down. What follows is the part we'd all like to skip, but we suggest it may be the real key to your being able to avoid mishaps and repeat successes in the future: History and its analysis.

By now you have most of the essential building blocks of planning and managing your sales and inventory under your belts. While we know you'd rather be heading out for a paddle, trail run or to the climbing gym, you still have work to do…so sit back down. What follows is the part we'd all like to skip, but we suggest it may be the real key to your being able to avoid mishaps and repeat successes in the future: History and its analysis.

This won't take more math skills than you presumably learned in sixth grade, so don't shut down your mind just yet.

For this discussion, once again, we'll assume you have a computer system that can capture what you've done in some usable format.

In addition, we highly encourage you to look into your system's ability to extract data into a database, such as Access, or into a spreadsheet program like Excel. True, it might seem odd to have a system -- especially one that likely cost you as much as a time share at a good ski resort -- that requires you extract information to analyze it in another program. If you're lucky, you won't. But our experience with even the country's largest retailers is that the good merchants live and breathe Excel and would be in sorry shape without it.

Learn it. It's your friend. Like our brains, you'll only need to use about 5 percent of its capability...less if you end up writing articles like this -- just kidding and please sit back down.

A database will allow you to archive many years' history for later reference. Most retail systems will be more limited to this end.

In addition, beginning the discipline of making non-numeric notes about your season will pay you big dividends as you will become a watcher of sales trends, and not merely a cruncher of numbers.

The benefits from this practice will help you plan for the future and will answer questions such as:

  1. What was in my mix?
  2. Did I get shipped on time? Was delivery a factor?
  3. Was this a trend or an anomaly?
  4. Were sales higher because we had to blow out goods on sale?
  5. What was that margin?
  6. How was the weather? Did it affect sales?
  7. Is what happened something I want to repeat?

When we look at history, our plans become moot: We have real results to consider versus what we thought would happen. So the moving parts on the numeric side are sales, gross profit, gross margin, receipts and inventory levels, as well as the various efficiency factors we've discussed previously.

Let's look at a few examples beginning with our first scenario:

In Scenario 1 for Spring 2007, everything went well: We took in goods at an efficient rate, hit good sales numbers each month and actually increased margins as the season moved along.

Our notes might read:

  1. Excellent Delivery: 98% of preseasons were ON TIME!
  2. No weather issues.
  3. Bought into closeout list in mid-March.
  4. Never went on sale.
  5. Brand X's Gizmos were really hot.

Retail heaven. We made good profits and were efficient with our inventory

Here's the next year and a different outcome:

What happened?

Our turns and GMROI were better than we expected, but the gross profit dollars were off by 10 grand. What gives? We sold through most everything, but it appears we had a sale in May because of late delivery and we panicked.

We'll never know which brands, styles and their mixture would have sold had we stocked them.

There are a number of possible causes to consider:

  1. We did preseason order on time and what we thought was correctly. But several brands didn't ship on time and a few others were incomplete. Or...
  2. We sort of, well, forgot to buy stuff. Or...
  3. We had credit issues and were on hold until April. Or...
  4. The stock got lost in the back room behind the boxes of paper towels and the ping pong table.

In any event, make notes about why we didn't have the inventory we required.

If we build the following season's plan using Scenario 2 as a model, without understanding it, we will repeat bad history!!!

We call this "chasing the rat down the hole."

Here's another example:

In Scenario 3, we had the inventory to do the job and apparently it came in on time. But our sales were down and as a result, profits and efficiency metrics were as well. We finished spring with more stock than we wanted, which will affect our fall plan.

Possible notations we would make as to why this occurred would be:

  1. Your biggest brand (X) just went "thud!" Demand seemed to go elsewhere. Or…
  2. Three staff quit in January and it took me two months to hire and train replacements. Or…
  3. Freak weather right through March. Two big snow storms, cold, rain, roads closed. Or…
  4. My size and color assortments were lousy. I guess after 15 years it's time to hire a buyer who knows what they're doing!

Whichever commentary matches reality, we will react differently:

  • If the buy was the problem, that's correctable and we might plan for growth in the future.
  • If the category is truly trending downward, then it's time to seek growth elsewhere.
  • If weather or staffing were the issue, then we certainly don't want to blame the product and penalize our future success by restricting this buy next time.

Here's another example, this one obviously successful, but we will still want to understand why:

This time, our sales came in very strong, we made a truckload of money, our metrics should be the envy of everyone, and our vendors supported this success with on-time deliveries (stunning, we know). We ended the season very clean inventory-wise, setting us up for fall opportunities. Why did this happen? Will this history repeat itself? Should we plan for 10 percent growth on top of this success?

We'll never know unless we have flawless memories or we make notes. Those could be:

  1. John and Emma were sales DYNAMOS! Keep them happy! Or…
  2. Bob's Ye Olde Sports Shoppe across the street was closed due to a fire. Or…
  3. The Republican Convention brought in triple the traffic we usually see. Or…
  4. This category and especially Brand X is ON FIRE! We sold everything we could get our hands on.

If the category is so obviously growing, you'll want to plan the next season with gusto and maybe look for 25 percent or higher growth.

If you can keep your great salespeople engaged, similarly you might anticipate continued strength in sales in sportswear.

If Bob is back in business next year, then you should toss this out as an anomaly and plan more conservatively.

And finally, the conservatives definitely won't be back next year so in like fashion, avoid assuming you'll magically see their sales made up by neighborhood Democrats.

One final note on trends:

They're hard to spot. This is when you need to look at your numbers, look at your notes and then roll the dice based on your gut intuition and what you can learn from other sources…like reading your SNEWS® religiously each week, for example. Hey, it's a thought.

Before Powerbar, there was scarcely much product falling into the "sports food" or "energy" category. Think of the number of brands and products you stock now. The same was true for amphibious sandals, hydration packs and electronic gadgets that tell us where we are and how fast we're walking and when we'll get there.

Faced with new or rapidly evolving categories such as these, we're forced to step beyond the data, beyond history and become retail pioneers, blending the science, the art and the craft of our trade to build future successes.

We've said that we are so very tied to the weather that we are indeed retail farmers, but in like manner we're also investors and experimenters. The better we keep our lab notes, the more likely we are to come up with the Next Big Thing!

Next time, we'll talk about collecting traffic and conversion data and the analysis of that information so you can better understand what is selling, or not, and why.

Have a question that is not answered here, or an observation, or even a better way of going about the business of retail merchandising planning than we have offered up? Then the SNEWS® Retail Merchandising Training 101 Forum is for you. Click here to enter a private chat section open only to SNEWS® subscribers.

This article is part 7 of a 10-part Retail Merchandising Training series produced by SNEWS® and authored by Michael Hodgson and Geoff O'Keeffe. SNEWS® president Michael Hodgson, in a former life, was a manager for five years with Adventure 16 and the general manager overseeing a team of buyers and store managers for three years at Western Mountaineering. In those roles, he learned, sometimes the hard way, how to make a living and make a profit (or not) in the world of specialty retail. Geoff O'Keeffe has held retail senior management positions at Granite Stairway Mountaineering, Adventure 16, Patagonia and, as well as having served as president of Lowe Alpine Systems USA and Mountainsmith. He is currently the vice president of operations at American Recreation Products, which he is managing to fit in while working on new projects at his home in the mountains above Boulder, Colo., where he is a fourth-generation resident.


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