Thursday, January 20, 2011

Wonky store stuff.

I realize the following is pretty store-wonky, but it's the kind of thing I never see written about. Perhaps there are business school scenarios and formulas that explain the following, but I don't know of them. ("Ah, yes," says the Professor, "the Goddwin Principle....")

Christmas and summer sales aren't just healthy because they are bigger than the rest of the year.

They're healthy because they are broader than the rest of the year. That is, you sell a wider array of material.

During regular months with regular customers -- you tend to sell within a narrower range of material. The more specialized the customers, the more specialized the material.

For instance, I can go hours, or even days, where the vast majority of sales are to regulars coming in and buying what's on their subscription shelves and nothing more.

And once all your regulars have passed on a particular product, chances are they aren't going to change their mind later.

Whereas, someone new in the door is going to be open to everything in the store, because he's never seen it before. In fact, he's more likely to buy the passed over product, because he's already gotten the in-demand product in his own base store, and it's more than likely the left-overs at his store are different from the left-overs in my store.

I'll try to explain the benefits of this.

Take a random 10 different items. Let's say that I have doubles on three of those ten items. What this means is, my regulars stopped buying before I got down to the one-of-each I like to keep in stock.

If over the course of a busy season, I sell one each of all 10 items, I won't have to restock at least 30% them, because I had duplicates. (Any product I don't have to replace is worth, more or less, 4 of product I do have to replace.)

If over the course of the slow months, I keep selling say, 5 out of the 10 items, but never the ones I have duplicates of, then I have to replace all 5 items.

But usually, in the slow months, it's worse than that. I'll keep selling, over and over again, the 3 most in demand of the 10 items. Since the other 7 aren't selling, my margins shrink -- and what happens is, either I go into the red to replace the best-sellers, or I start developing spot shortages.

But you need to buy the 3 best-sellers; and if you sell them enough times, they may or may not end up paying for all or part of the 7 slow-sellers.

(One of the advantages to staying mostly out of debt, and having a cash cushion, is that you can replace spot shortages faster, without hurting the store. But then you have debt....)

I don't know if all this is clear: it's a concept I'm still trying to figure out. Much like the realization I had years ago that you can have an active store selling lots of stuff, but still be bleeding red ink under the surface.

(Example: you sell 60% of a product in a week and think you have a winner; so you reinvest. But you only sell 20% more over the next 2 months, and then 10% over the next 4 months; and basically never sell the last 10% of the original order. Meanwhile, you've done the same thing with the second wave of material. If you aren't paying close attention, you will end up with your profits frozen in slow or unsaleable inventory...even though on the surface you may feel you've been busy selling.) (""Ah, yes," says the Professor, "The Carson Formula....")

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