Posted on 1st July 2013 by Valorie Reavis
Effective retail inventory management is a balance of information, forecasting, planning and, most of all, a comprehensive POS solution that supports all of the above. Inventory today can easily be one of the largest assets on a salon’s balance sheet, yet it’s also one of the most mismanaged areas of the business.
There are some rules to follow. Let’s start with the granddaddy of them all - the 80/20 Rule.
- 20% of products you sell make up 80% of your revenue
- 80% of products you sell make up 20% of your revenue
Another rule is supply and demand - the more products you sell, the more you need to make sure you have adequate amounts to not miss any sales. So how do you know what and how much to buy? This is where your software plays an important role and allows you to have visibility over last year’s purchases (salon and client). Begin with your sales history to determine average turnover ratios that can help set your minimum quantities.
Identify Slow Movers
When you understand where your inventory dollars live, you learn to reallocate your dollars from the D group and invest more in your A and B categories. For example, the $800 in handbags you have in your retail area only have a 18% gross profit margin and nothing has sold in 90 days, but you think they are cute. On another shelf you have a finishing spray that sells through weekly and has a gross profit margin of 53%. The smart move would be to bundle the products together and dump the bags, take your loss and invest 80% of your retail dollars into you’re A, B and C categories.
Know When to Spend
Pay attention to the number of turns your product has and your gross margin return. For example Product XYZ had 6 turns last year with an average markup of 25%. This formula (# of turns x markup % = ROI ) tells you that for every dollar invested in buying Product XYZ, the salon is making $150. Using Shortcuts' new Replenishment feature allows the owner to now forecast, based on historical sales, how much to increase or ramp up for seasonal upticks or downturns in their business. Product XYZ provides good ROI, in demand and my sales consultant has a good deal on it. Cha-Ching!
3 Tips to Improve
- Education - Invest in product lines and companies willing to get in the trenches with you and your team. If your stylists are not using and talking about it, they won’t sell it!
- Use Automation - Know what your client wants. It’s not about your favorite products; it’s about what your client’s favorites are and what they are willing to pay.
- Create a marketing plan tied to retail items. Use your software to generate purchase orders and a cross-section of customers who have purchased a product tied to a promotion. Helping clients recreate their looks keeps your retail products moving.
Keep the 80/20 Rule in mind when getting your team to play and to avoid being overstocked with excess inventory. Most salon owners don’t have a retail problem, but a shopping problem and simply fail to execute a plan.