Having the right amount of merch is an art. You have to be like a sculptor, a painter or filmmaker.
Purchase too much and you’re stuck with lost profits; too little, and you’re out of stock. You’re going to lose out if a customer has to look elsewhere for the item.
Everyone joked when Starbucks opened several new shops around existing locations. Their reason for doing so, however, was that they knew that 90% of Americans drink their coffee by 11 A.M; and that each person standing in front of one of their customers was a minute wait. If someone looking to get a cup of coffee opened the door to Starbucks and encountered a line of twenty people, they would probably opt not to wait. When they left and saw another Starbucks, however, the company still captured the sale because the product was available. They knew their customers; they did not want to be out of stock.
In his book, Retail: the Art & Science (2004) author Daniel Moe suggests that retailers organize their merchandise into four major roles: primary business drivers, traffic builders, profit generators, impulse/add-ons. That way, you know the role each product will have in contributing to your sales. For a grocery store, it might something look like:
| Role |
Products |
| Primary Business Driver (Your main category) |
Staples like milk, eggs, flour and meats |
| Traffic Driver (brings them in) |
Soda, milk, diapers |
| Profit Generator |
Deli, meal replacement, bakery, etc |
| Impulse/Add-ons |
Fresh flowers |
For a bookstore, it might be
| Primary Business Driver |
Hardcovers, best sellers, paperbacks |
| Traffic Driver |
New releases, Coffee houses |
| Profit Generator |
Coffee table books, bargain books, DVDs |
| Impulse/Add-ons |
Book marks, cards, stationary, gift-wrap |
By organizing your merchandise into categories, you can be sure you have filled the roles necessary to be profitable.
How to Increase Your Merchandise Turnover
- Keep your best-sellers in stock by monitoring your POS category reports. Find the top five sellers within each category every week, and balance to outstanding orders.
- Before buying anything, make sure you know what it will replace. Impulse is for customers, not store buyers.
- Come up with an optimal level of merchandise based on your POS reports, your merchandise turn and profitability; then create your open to buy and buy to fill. This can be tricky if a category has very high and/or low-priced items; so in that case, split the category.
- Watch your expected delivery dates. If you ordered merchandise meant to go together, remember to keep it together. You don’t want its first appearance to be diluted. Later, the few items that may be left can be grouped with new arrivals to give them a new look. For example, if you ordered holiday candles from one vendor, mugs from another, and teas from another, wait for them all to arrive. Don’t put the candles out first by themselves and lose the potential add-on sale. In those circumstances, simply taking a digital picture when you purchase them will serve as a reminder.
Please add your comments below:
Merchandise on the floor can look pretty but it is your money sitting there. While you can do an inventory of your store any time, traditionally it is the last weekend of January when your SKUs are potentially lowest.
