You Can’t Sell It In The Store If It’s Not On The Floor!

There is a yet another self-fulfilling prophecy that is sweeping current retail thinking. “We believe we are in a contracting market, so we’ll cut our inventory levels to make sure we sell what we have”. Truth be told as the 12 year retail boom extended, the art of inventory planning was buried under a sea of over-ordering and rolling 20% sales designed to clear overhang. Inventory management disciplines do need to be re-established and drilled into unconscious competence once more.

However, as Sam Walton once said, “You can’t sell it in the store if it’s not on the floor.”

A story Naum Onikul (recently retired Director of Woolworths Supermarkets) told the Australian Financial Review illustrates this point beautifully.

“An Italian migrant was making sausages and making very good sausages 200 kilos a week.” “He educated his two boys – one became a doctor and one an economist. The economist worked in Canberra and came to visit his father in Sydney and said – ’Father, business is getting tough. There could be a recession, so you’d better cut back on your sausage-making.’ “So the father cut sausage production from 200 kilos to 150 kilos. The son comes back for Christmas and says, “You’d better cut back more,” so the father cuts back from 150 to 75.” “The son arrives at Easter and says, ‘How’s business?’ The father says, ‘Terrible, I need to close because I’ve only sold 75 kilos of sausages this week!”

The true state of the Australian retail market is that we are in slower growth, not negative territory. Sentiment affects government and business expenditure far more than it does Australian households who – at a macro level – spend what they perceive they have to spend. Current retail expenditure is growing above +3% MAT – this year versus last year.

Yes, we need to plan inventories to ensure we don’t over-order. No, we do not need to plan in such a way that we reduce top-line sales, margins and profit.

The advantage bricks and mortar selling environments have over online selling environments is the ability to touch and feel the goods and cash and carry – that is, I can see it, buy it and take it with me right now.

“You can’t sell it in the store if it’s not on the floor.” And we all know in retail that lost sales today are not made up tomorrow. They are gone for good.

Inventory planning is a critical discipline in retail. No retailer wants to carry aged inventory. No customer wants to see good product they paid full price in good faith for, reduced to clear because of sloppy buying projections.

But cutting inventory out of fear and the impact of crystal ball gazing, negative propaganda is the beginning of a slippery slide into the abyss.

True merchants pick the right product, order the right quantity with a small allowance for risk/reward gain and then get out there and sell with confidence to the customer’s they know how to sell to.