Business Management

Stocking Up: Understanding Ordering and Inventory for Retailing

The back-end systems of selling retail – ordering your first batch of products and maintaining inventory levels – are often brushed over in articles about retailing. But in this article – the second of a two-part series about breaking into retail – we go in depth on what you need to know to run your new retail business behind the scenes.

Right product right place, right time, right price. Major retailers use this catch-phrase repeatedly in summing up the expectations of today’s consumer. In short, if you have the products the consumer wants, she’ll buy from you. If not, she’ll go elsewhere. It’s really that simple – and that hard.

The front-end of salon retailing – the persuasive professional recommendation, eye-catching displays – gets the most attention because, quite honestly, it’s sexier. But the back-end systems – determining the opening buy and maintaining optimum inventory levels on an ongoing basis – have equal weight in making or breaking a retail business.

So we borrowed another beloved catch phrase from major retailers: best practices.

Whether you’re just getting into retail or you’re looking to streamline your systems, salon owners, consultants, and distributors share their advice on how to best manage the business end of retailing – including your state’s sales taxes.

Making the Buy

Once you’ve made the decision to retail and allocated the space, your next step is to stock the shelves. But which products – and how many of each – should you buy?

Starting inventory levels are unique to each salon’s size and situation, but there are a few rules of thumb. Rod Wahle, a salesperson for Peel’s Beauty Supply (Omaha, Neb.), recommends starting at the end by setting a realistic, 12-month profit goal for the retail department. Once you know what you want to make, he says, you can work your way backward to determine your opening inventory level and ongoing inventory turns to reach that goal.

“Say your goal is to make $5,000 in profit that first year,” he explains. “If you’re going to work on the premise of completely turning your inventory every six weeks – roughly eight times a year – you’ll need $625 in inventory to start.” He arrived at that number by assuming the salon would take a 100% mark-up and maintain a consistent inventory: eight turns multiplied by $625 in profit from each turn.

Odds are your allocated space will accommodate your retail offerings if you limit yourself mostly to nail items. However, you want to make sure that the items you choose will maximize the space’s potential with the maximum number of turns (which will allow you to quickly expand your offering if you reinvest your profits).

This is a good time to consult your distributor sales consultant. Most distributors have opening retail kits already put together. Alternatively, your distributor also should be able to tell you the top retail sellers for your type of salon.

“We have suggested opening orders and opening pre-packs for every manufacturer,” says DiDi Merriman, nail division manager for Peel’s, Omaha.

“Your relationship with your distributor is pivotal,” agrees Kate Grider-Troc, president of 20/20 Foresight, a salon and spa training and consulting firm based in Bolingbrook, III. “You want to make sure the company is flexible as for as returns or trade-outs.”

When placing your initial order, don’t sacrifice breadth of selection for depth of inventory. Bobbie Cooper-Hulbert, owner of Nails by Bobbie in Powell, Wyo., and an OPI educator, advises salons to start with seven of each retail product six for the shelf and one as a tester.

Cooper-Hulbert knows what she’s talking about – this solo nail technician operating out of a beauty school in a farming community with a population of 5,000, retails $20,000 a year. “That’s better than half of what my hands make,” she says.

Explore Payment Options

If your desired starting inventory investment is more than you can afford, you’ve got two options: scale down or seek assistance. Most distributors offer a 30-day account to salon owners with good credit. However, Wahle notes that the industry average for inventory turns is four to six weeks, so you can’t count on being able to repay the full amount and replenish your stock without a back-up plan.

Merriman advises owners to ask about extended terms. For example, Peel’s allows salons that purchase OPI retailing centers – which cost about $3,000 fully stocked – to pay 25% down and the rest over three monthly installments.

If your distributor doesn’t offer extended terms, Wahle notes that some salon owners have used their 30-day account with the distributor, then paid the remaining balance with a credit card. “If the due date works out right, you get an additional 30 days,” he says.

At the same time, he cautions salon owners against overextending themselves. “Sometimes credit is a good tool to grow, and sometimes it can be the demise of a business,” he observes. “You have to have a plan and turn the inventory – it won’t happen on its own.”

An alternative is to start small and grow your inventory from your profits. “If someone has $250 to start their retail department, we will put in our hottest sellers, invest the profits back into inventory, and slowly work into more inventory.”

Automate Your Inventory

Once the product is on your shelves, you need a system for tracking its movement.

If your salon isn’t already computerized, a concerted retail effort makes a strong argument for it. Most salon software programs automate the inventory tracking process: All you have to do is enter your starting inventory level and minimum count for each product. The software will track the sales and alert you when it’s time to reorder.

Ann Fisher, owner of Jewel of the Nail in Holliston, Mass, agrees. She started out tracking her retail sales on paper, but soon switched. “We were writing down sales on scraps of paper because we were busy doing other things, and those papers would get lost or we would forget to write something down,” she remembers. “Now, everything that comes in is assigned a number in the computer. When a customer buys an item we just put the product number in the computer along with the initials of who sold it. The computer tracks all of that information and tells me how much I owe in sales tax.”

Salon software programs also enable you to run a variety of invaluable reports. “The money you can save on labor and the amount of information you gain from the computer far outweigh the investment,” says GriderTroc. “If you’re computerized, you can save on labor and the amount of information you gain from the computer far outweigh the investment,” says GriderTroc. “If you’re computerized, you can easily track service sales, retail sales, and hourly productivity.”

“I can look back at the end of the year and see how much I spent on retail, our total sales, our inventory turnover, etc.,” say Fisher. “With the touch of a button, the computer tells me which products aren’t worth keeping, which ones sell only at certain times of the year, and which I need to carry more of. On a daily basis, I like to see what each technician did and review overall retail and service sales,” she continues.

Following the Paper Trail

If you track your inventory on paper, you’ll need two forms – one to record your sales, and another to track physical inventory. Your retail sales records tell you what products sold and when, and who made the sale. You’ll use these records to calculate sales commissions and the sales taxes. Carol Shanks recommends separately recording all retail sales daily. “A simple form with the following headers – Inventory Number, Product Name, Price, Date, Sold By.”

You should also note on this sheet when a retail item is transferred into service. The inventory sheet, on the other hand, will help you track order dates and amount for each product. Industry consultant and BeautyWeb.com webmaster Terri Taricco suggests technicians use the following format for a tracking sheet:

On each horizontal line, record the product name and the par – the optimum amount of stock-on-hand. In the vertical columns, divide each box on the diagonal. In the top half, record the actual stock-on-hand; in the bottom half, write how many you need to order (par minus stock-on-hand).

As you build a history, your tracking sheets will alert you to trends. For example, if some products continually fall below par, that’s a signal to increase your par to avoid running out.

“I’ve had clients tell me, ‘Oh no, I couldn’t take your last one. I’ll pick it up next time I’m in,’” Cooper-Hulbert relates. “People don’t want to empty the shelf, so you’re losing sales if you get down to one or two bottles of anything.”

On the other hand, you may see that a particular product turns more slowly than others, which is a prompt to reduce your par for that product or to drop it altogether. The general consensus is that your inventory for each product should turn over a minimum of four times a year. That means that if you carry six bottles of a particular nail treatment, you should sell 24 bottles in a year to justify giving it the space.

Others put the average a bit higher. “I think most items should turn 10-12 times a year, meaning if I stock six bottles of nail treatment I should sell a total of 60-72 pieces a year,” says Taricco.

Keep your past inventory sheets somewhere you can reference them. While you may not be able to get detailed reports at the push of a button, you will be able to identify spikes in demand for a particular product as well as longer-term trends.

Grinder-Troc also recommends salons keep a third sheet at the front desk to track out-of-stock trends. “Record the product name and date when you run out of stock,” she says. When you place your next order, this will tell you how much you need to bump up the order. If you ran out the day before you order, you need to order one extra; if you ran out halfway through, double your next order.”

 

Price To Move

Manufacturer-suggested retail price is just that – a suggestion. By the same token, that “suggestion” is based on the manufacturer’s retail experience and market research. The general consensus is to follow the manufacturer’s suggestion – usually double salon cost. Except when…

You get a great deal. “I like to pass the savings on to clients when I can because it excites them,” says Ann Fisher. “It doesn’t stop clients from paying the regular price, because when they ask about our next sale I tell them that I honestly don’t know.

You’re overstocked. Again, Fisher will cut prices to move the product out. If it still doesn’t sell, she boxes it up and puts if in her basement to make space for something else.

The item costs more than $50.”Say you’ve got a pedicure kit that costs more than $50. In that case you might take a 40% profit margin to get the price down,” says Rod Wahle. “It’s better to sell two or three as opposed to one.”

You’re at the low or high end of the market. “Look at your salon’s demographics and positioning,” says Kate Grider-Troc. “If your clientele is younger or blue-collar, go with the manufacturer suggested retail price and run promotions. If you’re at the higher end, your retail should reflect that because it’s all part of branding. To determine how much higher, do a market analysis to see what your competitors are charging. Higher-end customers don’t mind paying higher prices as long as they don’t feel they’re being taken.”


Keywords:   retailing  



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