By: Carrie Watson, Outside Looks
When retailing, experience speaks volumes. But even the most seasoned outfitters had much to adjust to in 2020. The insights below reflect the takeaways and best practices learned over years of retailing, with a special focus on recent adaptations.
Sales are not everything
Sales are important. Sales are the start to our means as a business, our livelihood, our way to pay bills, our way to support the community. But sales are not everything.
There are many KPIs (key performance indicators) that tell the complete story of our business. Metrics like IMU, MMU GMROI, Sell Through, Months of Supply, Average Inventory and Inventory Turnover. This is just the start!
These combined KPIs can tell a beautiful story…or a scary one. They can tell us if we are efficient, making money, or doing better. They can tell us if we are spending too much, investing too much, or selling too slowly.
Contrary to popular belief, higher sales do not translate to more cash in the business. Retailers that found success in 2020 were down in sales, but still ended 2020 with higher bank balances than they started with.
How? They took complete control of expenses. They slowed the inflow of goods. They limited the amount of goods coming in the store. They bought less. Their payables decreased. They were conservative. They sold through existing products in inventory. They decreased the overall average monthly ownership in inventory to match the decrease in sales.
Cash is king
Sales do not indicate how much cash the business is working with. The Profit & Loss does not tell us how much cash we have. (That’s right!)
What is the best indicator of cash growth or depletion? Think of how a bank ledger operates, it is simply the day-to-day debits and credits, the cash/credit card income from sales, the rent expense, the payroll expense, the invoices that are paid (NOT COGS!).
How do you forecast cash? Sales – Paid Merchandise Invoices – Expenses = Cash
The P&L does not forecast cash. It only accounts for the cost of merchandise that has already sold. It does not account for merchandise that has not sold yet. Sitting on unproductive merchandise is extremely detrimental to healthy cash flow!
Cash is king. When sales are down, the secret is adjusting both expenses and merchandise invoices to a conservative level harmonized with sales.
Adapt & adopt
Adapt & adopt is not a new concept, but it will continue to be a vital practice for business owners that want to see their business thrive. Anticipate change, welcome change, thrive in change.
Change can take shape in unexpected ways. Pursuing change is not always investing in expensive technology, “planning” to change, or hiring a different type of person. Humans are more in love with the idea of change than actually changing. Fast, emotional change loses luster and is hard to form as a habit.
The best type of change is one that changes for a reason, to solve a problem, to fill a need, to prevent failure. To keep the business operating, to keep employees happy/healthy, to find efficiencies. A continuous focus is held on why the change is occurring and it is a motivational element to continue pursuing change.
I am a fan of calculated change. Calculated change understands the environment and the context and makes little shifts towards improvement.
In summary
Companies that embraced these ideas found peace of mind and the ability to continue operations through a crazy time. Hindsight is 20/20. Or maybe, 2020 gave us insights to work with now and in the future. I hope these ideas resonate with you.
About the Author
Please reach out to me at carrie@outsidelooks.com if you would like to explore any of these topics further.
Carrie has a specialized education in analytics, retailing and buying. She has managed merchandise for a variety of companies—from global brands to specialty retailers. With her dynamic past in Open To Buy Planning, she founded Outside Looks, LLC, a specialty retail consulting agency. Roughly half of a business’s revenue evaporates into the re-investment of merchandise. She takes the guess work out of how much and what to buy to maximize profits. Subscribe to our free email newsletter at www.outsidelooks.com or contact carrie@outsidelooks.com 512-963-2528.