Q&A: 5 Retail Myths Unravelled

There are many myths when it comes to owning and operating a retail business, so we decided to tackle a few. We sat down with Blacks Founder and Senior Consultant Steve Pruitt to talk about some of the myths related to inventory planning and markdowns. Here are his top five:

1) More inventory equals more sales

SP: This is a common misconception. In my 30+ years of experience the evidence suggests that in many cases when you lower your inventory sales go up. Why is this? With lower inventory, technically you’re increasing your turnover, which increases the flow of new merchandise. This creates more newness for your customers. Plus, there’s something to be said for starving your customers. If they don’t see big markdowns at the end of the season, the inventory seems more special and they are more likely to snap up items when they have the chance. Also, if you give customers too much choice they can become overwhelmed.

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2) Increased turnover results in lower open-to-buy

SP: Merchants often get confused over the relationship between turnover and open-to-buy. In reality, open-to-buy is a result of sales and markdowns and has nothing to do with planned inventory levels.

There is only one circumstance where increased turnover could lead to lower open-to-buy and this is when you change your rate of turn. For example, when you move from a planned turn of two times a year to a plan of four times a year. For a period of time you will have less open-to-buy because you will have less goods on hand to sell down.

3) Steep markdowns are just a part of doing business

SP: Actually, healthy markdowns are part of doing business. Steep markdowns are often the result of poor planning and aging inventory. You wouldn’t need to mark the inventory down if it wasn’t getting old!

However, adequate markdowns are a normal part of business and something both consumers and retailers should expect. As inventory starts to age, small, incremental markdowns can help clear out this inventory to make way for new goods.

4) I live in a different market than the big box stores

SP: A lot of specialty retailers believe that they don’t have to markdown at the same time as the big box stores because they live in a different market. This is saying that their customers are willing to pay full price when everyone else is getting goods at a discount. While there are some very lucky stores where this is the case, for many it’s just not true. You don’t need to be the first merchant to markdown, but you should be offering discounts in line with the larger retailers if you want to compete. This is especially true in the Internet age, since markdowns are advertised broadly.

5) Customers like to see consistency in inventory

SP: Always stocking the same brands can get comfortable – especially for buyers – but it’s not the best way to increase sales. Customers need to see newness, and brand variety is a part of this formula. I would suggest that you considered dropping the bottom 20% of your vendors each season. Think in terms of the margin and sell through performance. If your tried-and-true brands continue to perform well, you should definitely stick with them, but if interest wanes, it’s time to reevaluate your vendor structure. Retail is all about change and being able to navigate brand performance and customer demand.