By Bill Scott, president, StoreReport LLC
Last year, in March, a manager at one of my customer’s stores asked me to find out when the last sale of a certain item occurred. I reported back that the last sale occurred in November of the previous year. A little more digging around and I discovered the store manager had ordered that product to be replenished in the same month. The supplier was temporarily out, so he ordered it again. It didn’t come the second time either. By December, the spot where the good seller sat had already been taken over by another product, and with 6,000 products to keep track of, the manager, understandably, forgot about it. It took a customer to ask him why it was no longer available in his store for him to realize it wasn’t there.
This kind of thing happens all the time in the convenience channel. Most suppliers do not have a reliable back-order system in place, and it’s costing retailers profits. Managers are ill-prepared to manage inventory visually. Overworked store managers, always checking in received inventory, solving customer and employee problems, running back and forth to make deposits at the bank, and a constantly revolving staff suffering from a lack of leadership, can’t manage all of these products without help.
Molehills Quickly Turn into Mountains
The profit lost from this one incident ended up costing the store $22.50. Doesn’t sound like a lot, does it? But, in a business totally dependent upon traffic and volume, this $22.50 is only one indicator that the system being used is broken. I would not be surprised if one-quarter of the items in his store are similarly affected by situations just like this one, costing you, the store owner, an awful lot of money.
It’s perfectly understandable for a small chain of stores handling 6,000 different items to lose control of their inventory in a system where inventory is valued in bulk simply by the way the shelves look.
I can take you to almost any store in the U.S. and show you how their beautiful displays are driving their owners to the poorhouse. You CAN put lipstick on a pig, and your beautiful display of products may be no more valuable than bags of rocks, serving no monetary purpose other than eating up you precious working capital.
Category Management is a Broad Brush that Tells You Little
Yes, you need aspirin, cough syrup, hair spray and condoms in the HBA section, but if 70% of the items in the category are costing the owner money, what have they gained? Think about what they have lost. Inventory needs to be managed by what sells. If the product mix isn’t working, it needs to be fixed.
Retail is Most Definitely Detail
Margins and turns determine whether a store is profitable or not. If your customers are going elsewhere when products are missing from your store, it’s money lost you can never recover.
Very few convenience stores are run by lazy people. The few that are won’t last out the year. When I visit a store’s headquarters, I see people working like the devil, but being busy doesn’t equate to being wise. If you want to be successful in this business, you’ve got to get out of your chair and spend some time in your stores. Headquarters may be running like a clock, but if the inventory in your stores is not managed properly, most of your hard work is a depressing waste of your time.
The Three Greatest Assets
Your three greatest assets are your employees (that includes your store employees), the inventory you sell and the customers that come inside. Get your employees to dress alike, teach them how to treat customers, teach them to work as a team, and keep your restrooms spotless… I do mean SPOTLESS. When you have done all of these things, turn to managing your inventory by limiting what you buy to what you can sell between deliveries (plus a small amount of safety-stock).
And remember this:
- The ones who benefit the most from ‘deals’ are usually the dealers;
- The moment you take your eyes off your inventory is the moment your profits begin to suffer; and
- Untrained employees quickly become your most troublesome liability.