Balance and Flow
Balance and flow are the 2 essential pieces of running a successful retail business. The entire framework of Management One planning is built on these two foundational pieces. Successfully implementing balance and flow are the keys to identifying and seizing opportunities.
Balance means having the right classification structure and if you are a multi-location retailer it also means measuring the classification data at the location level. Not applying a top-down approach to all locations. E-commerce is considered its own location.
Many retail decisions are made at the vendor level. That approach seems reasonable. After all your purchases are made from vendors. And it is also true that some customers are driven to buy from specific vendors. However, the buying decisions from customers are driven more by classification than by vendor. It is also easier to follow trends at the classification level. The better the classification structure the better you can plan and measure your buying and selling. Customers buy tee shirts, basic and fashion, dresses, sneakers, skis, housewares, board games, etc. They all have a trend and a pattern. Inventory investment has to be in balance. What that means is that your inventory is invested in each classification proportionately to the expected profitable sales within each class. Balance is important because inventory is an investment where the end goal is a return on investment. The best way to achieve that ROI is to have the right relationship of inventory to sales.
Flow means having the right amount of fresh inventory at the beginning of each month in each of your classifications. This is measured by the stock-to-sales ratio. How much fresh inventory do I need at the beginning of the season, at the end of the season and at the start of each month? This part is tricky and the hardest part of buying. Getting it right can deliver growth, fewer markdowns, and better cash flow because you are buying into the right classifications at the right time.
In this recent webinar, Paul Erickson does a brilliant job laying out the case for balance and flow and demonstrates with live data how to accelerate your business to the next level. I strongly recommend watching this free webinar, even if you are an experienced buyer. It will encourage you to take a fresh look at your own data. It is also part of our M1 Accelerator Series: a set of 3 free webinars designed specifically for the indie retail community with a focus on diving deeper into critical metrics and reporting.
Risk is essential in growing a business, having the right balance and flow not only mitigates that risk, but opens the window for you to see your own opportunities.
Please add your comments below. If you would like to schedule a meeting to discuss your classification structure or talk about flow, here is a link to my calendar or contact Management One for more information.
Onwards, and Upwards,
Marc Weiss - Co-founder, Management One