Inventory, Second Locations, and Advertising
More often than not, retailers don't have their existing store operating efficiently and they expand, which only makes the entire operation more dysfunctional.
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PrintI recently read an article in Business Week about Build-A-Bear Workshop, the extremely popular retailer where you can build and clothe your own teddy bear and other plush. It seems investors pummeled the stock as the company cut its second quarter forecast.
According to the article, the company [17 years after starting up] is still dealing with licensing and related inventory issues -- they came up short last year on licensed products such as the Mumble character from the film "Happy Feet", with demand far outstripping supply while they overestimated this year and are now overstocked with "Shrek" merchandise.
Analysts speculate that the company's issues are related to three key areas: Inventory and inventory management, higher advertising costs, and costs associated with opening in foreign countries.
Inventory is a problem for most retailers. I walk into a Target store every other week for my household staples and I always leave without one item due to out-of-stock issues. Yet, the grocery store never seems to be out of Skippy Lowfat Superchunk Peanut Butter. It's about supply and demand. Grocery stores know that you have to keep items in stock or risk losing sales. Better to be overstocked in the best-sellers and understocked in the lower volume products [if you have to be understocked at all].
Advertising is advertising and costs are what they are. Perhaps Build-A-Bear took a different advertising tack and that resulted in higher costs. Only they know.
And in terms of opening in foreign countries or elsewhere, that always results in huge operational expenses. I was courting a client that owned two gyms in LA and wanted to expand -- to New York. I did my best to recommend clustering their locations in LA or in California at the least but last I spoke to them, they were moving ahead with opening in NYC -- and that's a novice retailer move. The costs of flying back and forth and the ensuing lack of operational consistency among the three units will be problematic and I guarantee, the experiences won't be quite the same -- they don't even have consistency in their two LA locations which are 8 miles apart and now they're going to transport their concept to a location 2,500 miles away.
THE REAL WORLD RETAILING TAKEAWAY
So how do you get your arms these major issues when you're not a Build-A-Bear Workshop with hundreds of locations? And why should it matter to you, the small retailer?
These issues are relevant to all retailers so here's a few takeaways in each area:
Inventory -- get in stock on your most popular items. Inventory management is always a fine line between having enough on hand without being overstocked (which just reduces your working capital). With most basic retail software, you should be able to run reports that show what you're selling by brand and product category by day, week, month, etc. Start analyzing those reports and restocking your shelves based on what's selling. A lot of vendors have minimum requirements so if you have to choose between not having enough products to make the minimum vs. being out of stock in one of your best-selling products, then place the order and buy only those top 3 or 5 or 10 products that are selling.
Higher advertising costs as a percent of sales -- advertising can be so complex - there are just too many media options to spend advertising dollars on. It's a dizzying array of choices even for marketing gurus. So throw that aside and focus on building your internal database so you can market to your existing customers. Sure, you need to bring new customers into the store but word-of-mouth, friends and family deals, events and other marketing tools to your existing base of customers are the best ways to bring in new traffic. Take a look at your advertising to sales ratio on a monthly basis just to gain awareness of what it looks like. Can you tie increased sales to increased advertising? If so, then you win -- keep doing what you're doing -- just make sure to rule out other factors like weather, the mall had a special sale, seasonality, etc.
Costs associated with opening new locations -- this is a biggie! As I mentioned above, too many retailers are so bent on expanding that they lose sight of the existing business. More often than not, retailers don't have their existing store operating efficiently and they expand, which only makes the entire operation more dysfunctional. Fix what you have before you embark on a second location or new endeavor.
According to the article, the company [17 years after starting up] is still dealing with licensing and related inventory issues -- they came up short last year on licensed products such as the Mumble character from the film "Happy Feet", with demand far outstripping supply while they overestimated this year and are now overstocked with "Shrek" merchandise.
Analysts speculate that the company's issues are related to three key areas: Inventory and inventory management, higher advertising costs, and costs associated with opening in foreign countries.
Inventory is a problem for most retailers. I walk into a Target store every other week for my household staples and I always leave without one item due to out-of-stock issues. Yet, the grocery store never seems to be out of Skippy Lowfat Superchunk Peanut Butter. It's about supply and demand. Grocery stores know that you have to keep items in stock or risk losing sales. Better to be overstocked in the best-sellers and understocked in the lower volume products [if you have to be understocked at all].
Advertising is advertising and costs are what they are. Perhaps Build-A-Bear took a different advertising tack and that resulted in higher costs. Only they know.
And in terms of opening in foreign countries or elsewhere, that always results in huge operational expenses. I was courting a client that owned two gyms in LA and wanted to expand -- to New York. I did my best to recommend clustering their locations in LA or in California at the least but last I spoke to them, they were moving ahead with opening in NYC -- and that's a novice retailer move. The costs of flying back and forth and the ensuing lack of operational consistency among the three units will be problematic and I guarantee, the experiences won't be quite the same -- they don't even have consistency in their two LA locations which are 8 miles apart and now they're going to transport their concept to a location 2,500 miles away.
THE REAL WORLD RETAILING TAKEAWAY
So how do you get your arms these major issues when you're not a Build-A-Bear Workshop with hundreds of locations? And why should it matter to you, the small retailer?
These issues are relevant to all retailers so here's a few takeaways in each area:
Inventory -- get in stock on your most popular items. Inventory management is always a fine line between having enough on hand without being overstocked (which just reduces your working capital). With most basic retail software, you should be able to run reports that show what you're selling by brand and product category by day, week, month, etc. Start analyzing those reports and restocking your shelves based on what's selling. A lot of vendors have minimum requirements so if you have to choose between not having enough products to make the minimum vs. being out of stock in one of your best-selling products, then place the order and buy only those top 3 or 5 or 10 products that are selling.
Higher advertising costs as a percent of sales -- advertising can be so complex - there are just too many media options to spend advertising dollars on. It's a dizzying array of choices even for marketing gurus. So throw that aside and focus on building your internal database so you can market to your existing customers. Sure, you need to bring new customers into the store but word-of-mouth, friends and family deals, events and other marketing tools to your existing base of customers are the best ways to bring in new traffic. Take a look at your advertising to sales ratio on a monthly basis just to gain awareness of what it looks like. Can you tie increased sales to increased advertising? If so, then you win -- keep doing what you're doing -- just make sure to rule out other factors like weather, the mall had a special sale, seasonality, etc.
Costs associated with opening new locations -- this is a biggie! As I mentioned above, too many retailers are so bent on expanding that they lose sight of the existing business. More often than not, retailers don't have their existing store operating efficiently and they expand, which only makes the entire operation more dysfunctional. Fix what you have before you embark on a second location or new endeavor.
