There’s gold in them thar hills!
If you're pining for gold it may be right under your very nose and ready to be mined.
To help set the tone you might also be interested in the origin of the quote, “There’s gold in them thar hills.” here.
For prospecting retail gold, your data will be your pan. Your pick is effective decision-making, and the riches are yours to pocket. Let’s get started. First off, finding the nuggets is knowing where to look. Most retailers are going to look at revenue, but the real opportunity is turning over the rocks. It is not the revenue you seek, it is the cash margin. Pure revenue can be deceiving. It can be driven by markdowns, a special event, a one-time opportunity, a look or trend that no longer exists, a low-markup item, and so on.
Flipping it and looking at the cash margin, gives you an approach and a strategy you can manage. The cash margin opportunity is something that can be analyzed and tactics can be applied to create more cash profit and more disposable income.
Here are a few simple steps:
STEP ONE
Run a report for the last 12 months of your cash margin by classification. If you are an M1 client this is available in your KPI icon on Retail ORBIT®. For assistance, ask your M1 Retail Expert or contact support.
STEP TWO
Select a specified quantity of classes to target, depending on the size of your business.
STEP THREE
Set goals and create tactics to improve the cash margin from the last 12 months to the next 12 months, and measure monthly and cumulatively.
The selection of the classifications on which to focus is vital because it gives you an opportunity to manage and improve. Here are some examples.
Last year you broke out tee shirts into fashion (graphic) and basic. It took time but you could see the lift in business was happening in fashion. Here is what we know:
Basics Cash Margin = 25,000
Fashion Cash Margin = 42,000
Markdowns in Basics were 18%
Markdowns in Fashion were 14%
Sell Through in Fashion was 80%
Sell Through in Basics was 58%
Armed with this knowledge, you know that you lost business in Fashion, and you had leftover inventory in basics, as well as profit still sitting on the wall, even with heavier markdowns.
This gives you an opportunity to better manage the flow and replacement of fashion. Take some risks and go narrower and deeper into looks you feel strongly about, that you know now with experience, your customer will buy. The sell-through has been high and the markdowns low so demand existed greater than supply.
On basics, you want to check the number of colors and styles you maintain, and make sure you are not duplicating looks from similar vendors. You may want to work with one vendor who will warehouse stock and feed it to you as needed. Better to be more important to one than carry many. That is a profitable tradeoff.
In the above scenario, a goal of $60,000 in Cash margin for fashion tees is reasonable and a goal of $25,000 in basics is still attainable. However, in the coming year generate the same cash margin with a lower investment in inventory by identifying mistakes, and changing up assortments and vendors.
In these two classes, the gold at the end of the year is an increase of $18,000 in cash margin dollars, and an additional amount of cash freed up by not overbuying basic tees. Not including a lower investment in basics will yield a cash increase alone in these two classes of 26%!
By focusing on cash margin dollar improvement, you’ll waste fewer dollars on underperforming merchandise, you’ll achieve better assortment planning, and you’ll have more money in your bank account at the end of the year.
There is gold in them thar inventory, it sure is easier than sitting on a river panning for gold or pick-axing your way through a mountain.
Onwards, and Upwards,
Marc Weiss - Co-founder, Management One