Tuesday, July 13, 2010

Make Your Dogs Bark!

If you're in retail, you've done what I've done - bought stuff that didn't sell. Oh, it looked good in the catalog or at the trade show. The sales rep gave you tons of info on it. You put it in a great location, even trained your staff on all its finest features.

But at the end of the day, the customers weren't buying.

So what do you do with those dogs? Make 'em bark and move 'em out!

This Thursday we'll have over five times the usual customers at our Summer Fun Sale. It's our once-a-year clearance sale (or as my friend calls it, the make-it-go-away sale).

For the past two months we have been searching the store for the dogs, the merchandise that just won't hunt, and red-tagging it at half-off the regular price. We've been storing these goods in a corner of the warehouse waiting for the third Thursday in July.

On Wednesday we'll close a couple hours early and set up tables & shelves right in the center of the store. And on Thursday the fun begins. Our first customers will arrive about an hour before we open. They'll sit by the front door in lawn chairs and peer through the window with binoculars to search out the deals they want to scoop up first. About fifteen minutes before the doors open our parking lot will be full.

And three hours later, I'll be making my first trip to the bank!

Some people ask me why I do it this way. They ask questions like...

Why do you always mark it half-off and not 25% or some lesser margin?

I mark it half-off to create both excitement and urgency. Anything less and customers might not bite. Remember, these are items no one wanted. Your customers already voted a thumbs down on them. You need to go big if you want to get their attention.

Why wait until one certain day? Why not just mark it down and have a clearance area?

I don't want to train my customers to expect a markdown. A clearance area that is always full of new merchandise just tells customers to wait until the item they like ends up there. The thinking goes... something is always on sale, so why pay full price? Plus, the excitement factor goes way down. Think about it this way... Would you rather have your parking lot full and people lined up at the door fifteen minutes before you open, or the same few regular customers wandering through the clearance section on occasion?

Why mark it down at all? You've already paid for it and now you're just losing profit.

If you read my earlier post on Gross Margin Return on Investment, you'll remember that GMROI is calculated by dividing your Gross Profit by your Average Inventory at Cost. Selling a whole bunch of inventory at half-off does not increase my gross profit, but it does wonders for lowering my average inventory. Plus, the cash I get gives me the opportunity to go buy something else that will make me a profit.

Here's another way to look at it. If I buy a crib for $350 and put it on my floor, but don't sell a single piece for a whole year, that space on my floor has cost me $350. But if I sell that crib for $250 after 6 months, I now am only down $100 for that space and have 6 more months to put something else there that might make me money.

The bottom line is this...

Don't be married to your merchandise. If you have dogs that have gotten fat and lazy, you need to make 'em bark and move 'em out. Turn them into cash and move on. That includes seasonal merchandise that didn't sell during the season, too. For us that means the Summer Fun Sale - a necessary part of my inventory management plan.

-Phil

2 comments:

  1. Hi Phil,

    How do you promote your sale?

    Thanks,
    Eli

    ReplyDelete
  2. Eli,
    I have been posting it on Facebook, sending it out via our email newsletter, using signs in our store, putting it in our after hours answering machine message, and doing guest spots on local radio and TV (just got off the radio two minutes ago:-). That's the free stuff. Plus, I have a huge banner that goes up on the building tonight. Also, by doing it the same day each year, the sale has a following all its own. There are customers we see at this sale that we never see the rest of the year (the transactional customers).

    As for paid advertisement, I am running a simple radio schedule all this week on our local FM radio station with 10 ads each day Mon-Wed 6a-7p and 6 ads Thursday 6a-12p, and on our local AM station 6 ads each day Mon-Thur 6a-12p.

    Total cost for the advertisements = $1092

    ReplyDelete