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WHAT DO MARKDOWNS HAVE TO DO WITH OPEN-TO-BUY?

Have you ever needed fresh merchandise, but because of current inventory levels, you do not have any open-to-buy dollars? No matter what o-t-b system is used, current inventory levels should be the foundation from which future buying amounts can be calculated. If inventory is higher than optimum, open-to-buy dollars will be directly reduced by the amount of over-stocking. If over-stocking is severe, there will be no open-to-buy dollars. What do you do?

The simple answer is that optimum inventory levels must be maintained and they can only be maintained by incorporating a methodical markdown policy and procedure. The alternative would be continuing to purchase while inventory levels accumulate. That would be like breathing in without breathing out. A healthy retail body requires a healthy rotation of merchandise.

Keeping dated merchandise is a performance destroyer. It ties up investment dollars, creates a “stale” look in the shop, dilutes customer interest, hurts sales, cost of sales, turns, and return on investment. Nobody has a perfect sell through at full retail, so the only mistake is retaining dated merchandise. In order to manage what is “coming in” one must first manage what is “going out”, and that requires a systematic plan.

Of course, sales at full retail is the primary option. For example, if a shop sells 80% of merchandise at full retail, then the other 20% must be rotated out using one or more markdown methods. Here are a few options and/or combinations:

 (90) Day markdown: Choose a time limit for each classification of stock, and items which have not sold in that time limit, are marked down to free up cash for new purchases. Keep a “Sale Rack” all year around where you can rotate dated merchandise. It does not have to be garish; just use subtle signage in a corner of the shop that members learn to find.

 Employee Sales: This can be a concurrent step. Employee prices on the sale table can be at an even deeper discount.   Encourage them to buy for themselves, family and friends.

 Internet sites: Equipment that doesn’t sell on the floor, sale rack or to employees.

 Surplus Liquidators: Final step(s). Contract removal of remaining stock after steps above, or

 Charity: Pick one that you would be proud to sponsor and send them your close-out remaining merchandise every month. Check with your tax accountant – the write-offs could be as beneficial as a deep discount, with far less work involved.

No matter what method(s) you use, as the commercial slogan goes, “Just do it.” You don’t have to determine how much to liquidate – if it has not sold within your time limit, mark it down and move it out! Don’t rely exclusively on once-a-year clearance sales. Order deliveries are staggered. Markdowns should be staggered for the same reasons.

Mark Caufield of Blackhawk Country Club reports that they have reduced their average inventory by over $100,000 and every retail performance standard including sales has improved as a result. Mark says, “We have a constant turnover of fresh merchandise which keeps member interest high.” He goes on, “The best news is that with inventory levels closer to ideal all the time, our o-t-b calculates only what we really need and we now only have a fraction of markdown merchandise each year compared to the huge clearance sales we were having before. Sales and profits are up and inventory investment is down – it doesn’t get better than that!”

Markdown management can not be viewed as an option - it is a prerequisite for improved retail performance. An open-to-buy should manage both inventory and purchases – not just purchases, and it all begins with a well executed markdown policy and procedure.

If excellence is your standard, OTBW is your program.