At this pivotal time, one of the most powerful factors influencing your New Year trading is how the last year ended. The closing stock of one time period becomes the opening stock of the next. Therefore, how retailers finished 2019 is vitally important to understanding 2020.
Time is of the essence to understand four key questions:
- What is the profile of your stock?
- What is the ‘health’ of your stock?
- What are the levels of your stock?
- What are the risk and opportunities in your stock?
You should have a very clear view of the current answers to these questions, as well as what the answers should be up until the end of the quarter, and the financial year.
Next, it’s time to clarify your plan. Will you choose leaner stock levels to drive a particular sales outcome? Or perhaps pursue more profitable result through better margin management? Furthermore, what are the pain points (or rather, pain habits), such as overstocking, that sneak up on you year after year – and why?
Defining your plan requires a pre-emptive and long-range view; understanding that stock flow from one period into the next is continuous, and understanding which key performance indicator to focus on and when.
What are the numbers telling you?
Planning, by definition, is only a plan. The end point is moving, and every decision, every change – whether planned or spontaneous – impacts the future position.
Deviations from the plan don’t necessarily mean goals can’t be achieved; perhaps you will still hit your targets, just not in the way you originally thought. Knee-jerk reactions – such as focusing on a particular number in isolation, or last-minute clearance sales – can be costly mistakes that are often repeated by retailers.
It takes both expertise and time to alter the profile and ‘health’ of stock, and maintain margin in the process. However once you know where you are, and where you are heading, you are in a stronger position to correct your course.
Back in my university days, we lived by the ‘5 Ps’ concept: ‘Prior planning prevents poor performance’. Retail is dynamic, and your stock plan should be too.
I’m often asked which measurements or key performance indicators are most important, but, as I said before, I don’t believe in looking at anything in isolation.
Some elements to consider are:
- Closing stock positions, referenced against targets and previous time periods
- Forward weeks of cover
- Full price and aged stock mixes
- Seasonal versus core line mixes
- Closing stock margins
- Freshness percentage
The last two are particularly important. Taken together, I have found closing stock margins and freshness percentage to be extremely reliable in predicting the ability to achieve forecast margin levels.
Capture your actual performance in the stock plan, and later, you can compare it to what you set out to achieve.
Review – and preview
After the panic of Christmas, retailers start to consider what needs to happen for the next year. A review is a good place to begin. However, I’ve observed that many businesses conduct a basic review, without translating it into a ‘preview’ – an extrapolation of those insights, interpreted into a strategy.
For example, if the review reveals performance below target margins, with higher than planned markdowns, a decision may be made to reduce markdowns next season. On the surface, this makes sense; we know that reduced markdowns are linked to higher profits.
However, it’s not a straightforward cause-and-effect relationship. To achieve the desired end of higher margins, the business must first correctly identify that high markdowns were the problem, understand why this was the case, and put in place a clear strategy as to how this will be addressed going forward.
Imagine the review through the lens of twisting a Rubik’s Cube: there’s a big ‘box’ of data available, which is manipulated over and over again, and considered from many different angles, in varying combinations. It’s only once you see the data arranged in a certain way that the ‘ah-ha’ moments occur.
In your review process, it’s important to go beyond just what you observe and determine why something occurred; consider sales, margin and stock, and how they interrelate; maintain perspective around growth areas, while protecting your hard-earned base.
Look at planning, buying, marketing, production, operations, and supply chain in order to find the ‘story in the numbers’; and form a habit of conducting regular review-previews while things are still fresh in your mind. Improve your traditional post-seasonal review, add a preview, and set yourself up for a head start, not a false start, in 2020.