Your selection of merchandise is what will set you apart
from other stores. Your decision to go into retail was based
on the desire to meet an unmet need. Don't lose your focus
now and undermine all the effort that went into planning
by buying any old thing. Product selection is all about
positioning. It's one thing to stock every item in a category;
it's quite another to selectively choose those products
that enhance your reputation.
"Successful
inventory forecasting and management comes from being in
the business," says 20-year veteran hi-fi sales and
service retailer Jim O. in Thomasville, Georgia. "There
are no shortcuts or formulas. In the beginning, we went
to the manufacturers' reps and asked them what the most
popular items were and what was selling. Now we go to home
theater forums on the Internet to see what people are talking
about. We look at the market and what others are doing.
There's so much competition--and the margins on fast-moving
popular items are slimming down--so you have to stay alert.
This is true of any type of inventory, not just ours."
Establishing
Your Inventory
Here is a simple procedure to follow to help you decide
which merchandise you should offer and which you should
not. If you are dealing with electronics or clothing, you
may wish to do your breakdown on the basis of brand names.
If you are organizing a food business, simply list the food
supplies you would have on hand the day you open.
We asked
a motorcycle dealer to explain how he would use this model.
1. Divide
your inventory into broad classifications, such as $30,000
for motorcycle hard parts.
2. Divide
each broad classification into sub-classifications--for
example, engine parts, wheel parts, frame parts, transmission
parts, dress-up parts, drive-line parts, and tune-up parts.
3. Allocate
a certain percentage of your capital to each sub-classification-for
example, 20 percent engine parts, 5 percent wheel parts,
5 percent frame parts, 5 percent transmission parts, 30
percent dress-up parts, 10 percent drive-line parts, and
25 percent tune-up parts.
4. Locate
resources that will sell you the products you want to stock.
Read Hot Bikes magazine, the Motorcycle Dealer News Annual
Buyers Guide, Thunder Press newspaper, and Easy Rider magazine.
Get catalogs from Custom Chrome, Parts Unlimited, Drag Specialties
and Nimco.
5. Make
sure each item purchased gives you the best possible markup
and that the retail prices will fit the price lines you
have set for your operation. The store's target markup is
50 percent on services, 40 percent on accessories and clothing,
and 35 percent on hard parts.
You
only have so much money allocated for merchandise. The challenge
you face is to achieve maximum sales from what you buy.
By first determining how much of what you are going to buy,
you discipline yourself to be discriminating and to keep
your buys in balance with your overall inventory needs.
Faced with an enthusiastic salesperson, an attractive deal
and a hunger to buy, you need all the will you can muster
to remember your priorities. Overstocking in one area at
the expense of other areas is a dangerous proposition. Take
your buying plan with you and stick to it.
Your Pricing Philosophy
Decide on your basic pricing philosophy: Will your prices
be above the market, competitive or below the market? You
may have already answered this question when you decided
what kind of business and image you wanted and formulated
your business plan.
Pricing
for profit is vital to your business. But pricing should
not be driven by profit motives at the expense of fair,
ethical tactics and competition. Profits should be the result
of smart business, not a means to an end. With good business
relationships and products priced correctly, you will generate
sufficient sales to provide the capital you need to stay
in business and enjoy some profits.
In making
your pricing decisions, you need to answer these questions:
