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Retail Markdowns - part2

خرده فروشی

When I was on the board of the University Of North Texas School Of Merchandising, we reviewed the degree plans and curriculums for students looking to become buyers.

 

I was amazed at how much emphasis was placed on the fashion of the product and how little was placed on math. Through working with the faculty, we tripled the amount of math classes a student needed for the degree. Why? 

Because buying inventory is about math way more than it is about your fashion sense. For example, go back to our four colors in our shoe example. If you were thinking properly and trying to avoid markdowns, you would have bought 12 pairs each of the two colors you knew would be a hit and only six pairs each of the other two colors. This way, if a markdown is needed, it does not impact your bottom line as much. 

While a markdown is used to incentivize the customer to buy the item, another consideration here would be to incentivize your sales staff. By using a “spiff” you can reduce your markdowns in your store. 

A spiff is a special payment made to the salesperson who sells the shoe (or purse or TV, etc.) It is a set $ amount for each sale. For example, if you sell this shoe, you will get paid an extra $5 spiff. 

Spiffs for employees are smart for two reasons. One, the employee is getting rewarded for their behavior in helping you remove bad inventory. And second, $5 (while still a markdown of sorts even though it will show up in selling costs on the P&L) is much cheaper than a 20% markdown on the original selling price. 

The truth is, no matter how great the incentive to the employee, sometimes you just make bad buying decisions – we all have! And in these cases, no spiff is going to make up for it. The best practice is to never fall in love with your inventory. Don’t let your ego or pride get in the way. If it's a bad product, mark it down and get it out.

Too many retailers hang on to inventory too long trying to “get the most out of the sale.” Sadly, the longer it sets in your store, the more stale it gets and the more it impacts your visual appeal. Plus, a shoe on the shelf is worth nothing to your business when a bill comes due. Cash flow, on the other hand does. Sometimes the best practice is to take the markdown and get rid of the merchandise which creates cash flow to “fix” your mistake with a better product next time.

Compiled in Editorial Board of Retailiran

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