How Retailers Can Find the Right Vendors
How Retailers Can Find the Right Vendors
Managing a profitable retail footwear business requires merchandising the right vendor partners. Selecting them is part art and part science. However, with proper attention to the details and by conducting research and seeking input from others, a store owner can greatly improve their sales and profitability.
I have found these are the main focal points to finding the right vendors:
1. The 80/20 Principle
The principle states that 80% of all outcomes are derived from 20% of causes. Following the principle, it would stand to reason that the minority (close to 20%) of the available and appropriate vendors will produce the top 80% of retail gross profits. What “works” for other retailers who have similar stores to yours should work for you. Simply put, focusing on the top brands in the top segments should yield the most optimum results.
2. Assortment Planning
This can be explained as determining what merchandise to carry and how much of it.
Segmentation involves targeting a group of shoppers and carrying the best brands to meet the needs and wants for that segment. If your business is 70% casual and 30% athletic, and if all brands and styles sold equally (they don’t) ideally you’d want 70% of your brands casual and 30% of brands athletic. And… you’d want to secure the very best brands within each segment.
Balance means buying enough to make a statement (and give the brand a chance to succeed) but not too much that you can’t turn the inventory effectively. Balance also means sufficiently stocking your store so that you give your customers the best selection in the most desirable product possible.
3. Open to Buy Forecasting
I strongly believe that open to buy forecasting models add value to the approach of maximizing cash flow through a goal of buying efficiently and controlling markdowns. Excess inventory within merchandising classifications results in excessive markdown exposure while Insufficient inventory results in missed opportunities. Open to buy information is helpful if one’s goal is to restrain over-assorting merchandise and vendors.
4. Relationship Building
I’ve found that the best selections of brands and styles in stores are a result of store owners who cultivate strong relationships with territory reps and fellow retailers.
• Your responsibility is to work with the vendor rep in a timely manner, respecting their time, too. Only through mutual respect can you have good relationships.
• Good things happen when you network with mentors, whether they be sales representatives or other retailers. They help you determine which vendors will work best and they help you get them. They also help you select which styles are likely to be successful.
Sometimes you can’t get the vendors you want based on your store’s proximity to another retailer. However, those owners who have succeeded in developing good reputations have distinct advantageous positioning over those who do not.
5. The Details Behind the Profit Equation
To produce a good return on your investment with each vendor, you need to be energized around maximizing these key profit components. You measure the results on a per category basis and a per vendor basis and strive to improve your average ratio results over time. EVERY PENNY COUNTS!
IMU: This is initial mark up and you need enough to withstand your operating ratios.
Markdown Control - Markdowns should be within budget and that means you need to plan and control those costs.
Gross Profit: Subtract your cost of goods sold from your net sales and that is a dollar figure called Gross Profit. Your aim is to maximize this, not simply sales revenue.
Margin %: Divide Gross Profit Dollars into Total Revenue and the percentage is your Maintained Margin Percentage.
Turn: Expressed in the average number of times you turn your inventory in a year.
Timing: Dating between the time the order ships and the date is it due.
Discounts: Very important; counts toward maximizing your gross profits.
Paying attention to the small details reaps large benefits. There are going to be a few hiccups along the way. Some aspects of the above list are ideal; others are absolutely necessary. Overall, this business (like many others) is a people business. As such, networking and relationship building is vitally important.
This is the second in a series of Footwear Insight columns authored by Alan Miklofsky, a shoe industry veteran whose business was awarded the top score in the Footwear Insight Gold Medal Service Awards in 2019. After a successful career as a shoe store owner, e-commerce pioneer and trade association leader, Alan is currently a business consultant.
For more information on Alan, visit his LinkedIn page at: https://www.linkedin.com/in/alanmiklofsky