by Christine Jaros | July 20, 2022
Whether a brick and mortar, or an E-commerce business, a retail store has several moving parts that either all work well in collaboration with each other and keep the business ‘humming’ along or fight each other and create chaos and failure. Having spent 35 years in New York City fashion where I built a career in wholesale sales and marketing to retail stores of all kinds, I’ve seen the evolution of the industry – from the rise of icon brands, mega malls, global catalogs, niche chain stores, premium outlets and warehouse clubs, Alexa and E-commerce, to the closure or consolidation of major department stores and mass merchants, and the decline of traditional brick and mortar mom and pop stores.
I’ve worked with the best of them, and the most challenging, through great economies, and the worst, including the pandemic. What ‘gems’ do I have to share with you after all these years?
- Being tuned in to the history and the success of other brands/stores around you give perspective – like looking into a rearview mirror. But it won’t take you down the road.
- Retailing will always exist in one form or another – one simply must be nimble.
- Maybe there is a very small element of luck involved, but really it comes down to business management (knowing how to manage your dashboard metrics) and tenacity.
So, before we build a dashboard, let’s get the falsities out of the way.
Myth #1: If you build it, they will come.
Myth #2: I just need more stock/products.
Myth #3: It’s the weather.
No, no and no. Let me say that again. No, no and no. If you are using these excuses, there is a larger problem afoot. Let’s see if some of these dashboard metrics can identify the root cause of sales slowdown or stoppage.
Sweating the details
There are some numbers and activities that you can’t avoid or take a shortcut on because they roll up into bigger financial metrics that scream green for go and red for stop. In this two-part article, we will discuss eight dashboard metrics that should be on your radar. So let’s get into the first three now:
1. An Inventory Report
Create a spreadsheet of all products by S.K.U. (stock keeping unit which is also known as a style number) and label each with a season (include year). If season doesn’t apply to your product, use a receipt or purchase date. Inventory is a live metric. It increases with new purchases you make or decreases with sales/shipments. Update this report at least once a month with current unsold units you possess by S.K.U. number.
Extend them out in currency form by their wholesale and/or retail price (depending on which you use to calculate your sales). Add up totals by season, and grand total it. This is your liability picture. Inventory is like bread – the longer it hangs or sits, the older and moldier it gets. Some inventory has a shelf life – a limitation to how long it will maintain its present state, value, or quality.
No matter the commodity, for every day it stays in your warehouse, it depreciates in value. Inventory is also your sales fuel – you do not want to be caught short and not able to ring the register.
2. Production Status
If you are a manufacturer/retailer, you need to track your production status on a weekly basis especially if you are actively producing products. A production status report generally includes three stages of production inventory: raw materials, work-in-process, and finished goods. Most manufacturers track both dollars and units.
a. Raw Materials: Raw materials are the unfinished, unprepared or disassembled components of your product. In food products, these are ingredients like flour, sugar, salt, and water. In clothing products these can be fabric, thread, zippers, and labels. Other products will include various parts, components, and packaging pieces.
Each raw material has a value and is part of a calculation used to make a single unit of your product. Raw materials are assets of the business. Knowing your balances will allow you to track your supply needs on a timely basis. Not all raw materials come from the same source, nor do they take the same time to acquire.
b. Work in Process (WIP): When the production process starts, raw material components are pulled together based on a calculation for producing the desired number of finished goods units. For example, if you want to make 100 pairs of jeans, you need 200 yards of denim fabric (because one pair takes two yards, so 100 units x 2 = 200). Raw material values are reduced by the calculated quantities used for this production run. A new number is now created under the heading of WIP – your units being manufactured (100 pairs of jeans). Because the assembly takes time, they are considered work in process. Zippers may be sewn in, pocket bags sewn together, but the jeans are nowhere finished or wearable. Only when the production process is complete are they counted as finished goods. Nevertheless, in this state, their value is calculated on the unit price – same as finished goods.
c. Finished goods dollars/units. Finished goods are just that – completed products. Once received at your warehouse, they become inventory, and are added to your current inventory balances.
3. Unit Plans
Successful retailers start with a plan for a total number of unique styles, and a total unit plan for S.K.U.’s within each style. This is the big picture around which everything comes to fruition.
For instance, a car dealership plans 10,000 units in each category of compact cars, 4-doors, and SUVs. Under each category, the dealer plans an estimate of units by brand of car, all the way down to a plan by color.
There are many ways to develop a plan including one which is based on a budget of what you can afford to make or buy. Some companies will plan based on existing sales/orders which means they only produce what is sold. Others with existing customers often plan using selling history and projections based on anticipated demand and trends. Experienced retailers and companies use a combination of all the above. So, like a road map, planning is everything in taking your business from point A to point B. Ultimately, arriving at Point B may include deviations in your road trip which can cost you more, or change your selling opportunity.
a. Original Ownership – This number is your initial plan of units to be made/purchased. For many businesses, all company financials are based on this original number including the break-even analysis, selling price, sales volume, profits, operating expenses, operating activities, payroll and more. Ideally it becomes your actual (final) units produced or purchased and sold.
b. Actual Ownership – This final number of produced or purchased units is the only number you can actually sell. Impacted by the production process which includes exposure to waste, yield issues, capacity challenges, quality rejections and theft, a provision for this should be part of your planning process. Although every industry has its own metrics, shooting for an actual number that is +/- 2-to-3% of the original ownership plan is usually acceptable.
Tracking your planned versus actual units may be something you want to monitor daily. Why?
As stated above, all financials often run on these numbers. For example: It’s the holiday season, and last year you sold out of your entire stock of jingle bells. So, this year, you are planning to produce that amount plus 10%, because that is what you can afford. With this increased production number, the factory quoted you a lower manufacturing price which meant you would make more money per unit because of the increased units being made. Additionally, you would not raise the price on the customers since the lower costs yielded a larger profit margin.
A month later, the raw materials have arrived, and the supplier of bells has shorted the order. It’s the holiday season. You can’t wait for another supplier to fill the shortage, so you will proceed with a revised production plan.
Unfortunately, you don’t meet the production minimums to unlock the reduced price quoted by the factory, so costs will go up. You either accept a shorter margin on top of having fewer units to sell or pass on a higher price to the customers to try to maintain profit goals.
If you have taken advanced orders for all the planned jingle bells, you will need to either short the orders to many customers or cancel orders due to the lower production volume. This does not build goodwill with customers, especially if they are counting on your jingle bells to make their planned sales revenues.
Those are just three of eight dashboard metrics you should be paying attention to in your retail business. Check out part two of this article for the final five metrics, as well as tips for how to track those metrics.