Rick and David Natelson have been featured in MR Magazine “Ask the Experts” column. Here are some of the questions they fielded:
- Q: As I prepare to come to market, what are some strategies to improve my initial markup from 55% to 60%, as my inventory consultant recommends?
- Why do people hire firms like yours? Aren't you a service for failing, cash-starved retailers?
- Too often we hear about stores that get help from companies like yours too late. How can a retailer determine if it's in need of help, but not beyond help?
- You guys have a unique perspective as a promotional sale specialist. What is your sense about the next year in men’s retailing? What will 2010 be like?
- I am planning to retire and close my store in Fall ’09. I have good credit and plenty of friends in the business. Why should I hire an outsider to help me?
- After my December Winter Clearance, January Further Markdowns, and February President’s Birthday events, I still have unwanted goods left over. What should I do with them?
- My store can use a facelift, and I know that a Renovation Sale can drive additional business and help my cash flow. When is the best time to plan the construction and the sale?
- Several weeks ago I read with interest your comments of common characteristics of failed stores. What do I need to do so my store doesn't become one?
- Your company, Natelsons, has worked with retailers on hundreds of sales; but a sale is a sale. What makes one sale more productive than any other?
- I need to close an underperforming branch store this season. How much additional business can I generate with a Store Closing Sale?
As I prepare to come to market, what are some strategies to improve my initial markup from 55% to 60%, as my inventory consultant recommends?A. The popular easy answer over the past few years has been "Buy less up front. Save your OTB for off-price purchases in season." Some retailers have taken this to an unhealthy extreme, confusing the supply chain and contributing to a general lessening of available product. Rather than debate the chicken and the egg, let's start with a good understanding of the numbers.
A common misconception among retailers not steeped in the intricacies of retail math is to believe that getting a 5% discount will raise initial markup by 5 points. In fact a 55% markup means your cost is 45% of the full retail. In order to hit 60% IMU, you need to reduce your cost to 40% of full retail. The math to determine the necessary discount is (45-40)/45, or 11%. So nothing against the buying office or vendor 5% incentives, but you need more.
A similar error occurs when retailers try to compare vendor offerings based on “% off.” Which is better, buying an item from a 57% IMU at 33% off, or buying an item from a keystone line at 40% off? Astute off-price buyers think in terms of “% of retail,” not “% off of cost.” So 33% off of 57% IMU (.67x.43) yields a cost % of .288, 1.12 markup points better than 40% off of 50% IMU. (.6 x .5 = .3).
Work hard both upfront and in season to reduce your purchase cost as a % of full retail. Seek exclusivity and develop labels that command full markup. Plan some high markup purchases into your upfront commitment, not only your late season spending. And for starters come to the table with a clear understanding of what buttons to push on that calculator.
I need to close an underperforming branch store this season. How much additional business can I generate with a Store Closing Sale?A: This is perhaps the most frequently asked question we get from retailers—and with good reason, since from this forecast come decisions relating to the duration of the sale, markdown plans, advertising budgets,inventory augmentation plans and modified commission structures.
The sales multiplier, i.e. forecasted sales compared with last year’s sales, is the most common measurement used to quantify promotional sales events. Sales multipliers for Store Closing Sales can vary greatly,however, ranging from 1.5 to 3.5, depending upon the duration of the sale, the seasonality and most importantly, by how much business the store can do on day one and week one following the initial announcement.
Regarding the critical question how much business the store can do on day one and week one, and how long the sale should run, consider the following factors:
- Sales trends. Track the previous 36-month sales history, month by month, highlighting unusual occurrences and up or down blips.
- Timing. Depending upon whether the sale takes place early, in the heart of the season or during the season’s end there will be repercussions in terms of duration, sales potential and initial markdowns.
- Customer list. The size and ongoing maintenance of a core customer list is critical towards estimating the response to initial marketing efforts.
- Promotional history. The less promotional the store, the more unique the event and the higher the forecast.
- Market/competition. The size of the market will have implications beyond week one (i.e. the smaller the market, the shorter the duration); competition is generally a positive, allowing a Store Closing Sale store to increase market share by virtue of its more appealing offer.
- Freshness of inventory. The fresher the inventory, the less the initial markdowns and the more desirable the offering.
- Merchandise quality. The higher the price points, the greater the opportunity to maintain momentum with markdowns in subsequent phases.
- Fashionability factor. The more contemporary, fashionable the store, the less opportunity to augment with off-price goods and the less price-sensitive the customer will be to markdowns as the sale progresses.
- Store reputation. Commonly referred to as goodwill, the stature the store maintains in the community is perhaps the single most important factor in estimating first day and first week sales. This assessment relates to the years the store has been in business in that location, as well as most of the above factors, e.g., sales trends, freshness of inventory, promotional history, quality of customer list.
Cash flow issues often pressure owners to start the sale prematurely. This is a mistake. Understanding the critical importance of week one to the overall success of the event makes it advisable to be patient, to ensure the store is sufficiently inventoried at the break, with the proper mix of goods, and to carefully plan the initial marketing towards the store’s core customers. If the event gets maximum excitement at the outset, positive word of mouth will naturally follow,and combined with other media marketing and merchandisefill-ins, will maintain strong momentum throughout. This is the formula for maximizing thefinancial benefits of the Store Closing Sale.
Rick Natelson can be reached by email at firstname.lastname@example.org.Back to top
Too often we hear about stores that get help from companies like yours too late. How can a retailer determine if it's in need of help, but not beyond help? When is it not too late to recover?
Like any ailment, acknowledging that the problem exists in the first place is the first step towards finding a cure. Many retailers only first acknowledge they need help when cash dries up. Calls from unpaid suppliers finally force them to address why there’s no store traffic, why they can’t sell goods profitably and why they can’t take their own paycheck.
A promotional cash-raising sale event at that point may buy some time or build a bridge to a yet undiscovered solution, but the “feel good,” “quick-fix” short-term medicine only works with a vision of what happens when the sale is over. If a cancer has already permeated the store, the promotional sale cannot resuscitate an already dying patient.
Here are some danger signs that a store is on life-support and that the best sale to run may be a going-out-of-business sale:
1. A steady decline in sales over the last 36-month period
2. Inventories depleting faster than sales are plummeting
3. Maintained margins declining by 5% or more
4. Most payables older than 60 days past due
5. Combined rents and advertising costs exceeding 15% of sales
6. Lines of credit maxed out
7. Current liabilities exceeding “appraised” inventory levels
8. Customer profiles and mailing lists not maintained
9. Irregular or nonexistent open-to-buy merchandise planning sessions
10. Shabby store appearance, with inadequate visual display
Catching and reversing these negative trends before they disable the business may require help. The promotional sale will accomplish a number of positive short-term goals; however, it’s only an important first step to an ongoing turnaround process. Projecting how much sales and profits can be generated in a 6-10 week promotional period is critical to strategizing immediate debt repayments and new inventory purchases. What also is required, however, is a vision of what post-event changes will make the operation a viable entity going forward.
Rick Natelson can be reached by email at mlnate@natelsonsInc.com.Back to top
You guys have a unique perspective as a promotional sale specialist. What is your sense about the next year in men’s retailing? What will 2010 be like?
The accelerating paceof change today makes it difficult for anybody to know for sure what lies ahead.But to paraphrase Mark Twain, reports of our imminent recovery may be greatly exaggerated. The men’s specialty retailer remains in a twilight zone, hangingon as best he can to proven values and strategies while trying to dodge the bullets of record unemployment, dress code casualization, changing consumer buying patterns, cautious spending, and gridlock government. Banking on media phrases like “growing consumer confidence,” “improved economy,” and “increasedoptimism” will not stop the bleeding. Realistic vision, innovation, planning,and passionate execution remain our keys to adapt and prosper.
Engaging existing and new customers through social media dominates current pop strategies for three excellent reasons. First, it gets retailers young-minded, and connects them to a large new generation of apparel prospects. Second, it potentially builds your brand from the inside out, starting in the hearts of the people who know you, like you, and feel your strength the most. And third, compared to traditional marketing, it is very cost efficient. Whether you empower an underutilized youngish salesperson on staff or outsource, shout your competitive advantages through this emerging marketing tool.
The wholesale marketplace has done its part to fuel that elusive recovery. Luxury vendors have introduced more affordable price points, many new lines look fresh at medium pricing, and more items with huge markup potential are available up front to big and small retailers through worldwide sourcing efforts. The new cooperative “we’re in this together” spirit of suppliers continues to cushion the fall, especially to those retailers with credit and credibility. The high-end specialist needs to selectively work these opportunities without alienating his most discriminating clientele.
Economic theorists speak of a “W” shaped recovery occurring over a long period of time, with spurts fueled by stimulus spending offset by deep-seated weakness in jobs and debt ratio. Now is the time to navigate your own shape of things to come by aiming younger than the boomer generation, compounding small successes, and avoiding the complacency of wishing your way back to the way we were.
I am planning to retire and close my store in Fall ’09. I have good credit and plenty of friends in the business. Why should I hire an outsider to help me?
Closing a business in which you have invested a lifetime of blood, sweat, and tears should never be a “hit or miss” proposition. Realizing maximum recovery for your elusive asset “goodwill” requires a solid homerun in what may be your one and only appearance at the plate. While some have analogized handling a sale of this nature on your own to removing your own tonsils, we recognize and salute the rare “do it yourselfer” who can confidently answer all of these questions:
- When and what should I tell my employees, my landlords, my vendors, and my customers?
- What should I call my sale?
- When should I start it and for how long should I run it?
- How should I advertise and how much money should I spend?
- How should I price my merchandise and how often should I change prices?
- Should the amount of inventory on hand determine my sales projection, or does my sales projection dictate the amount of inventory I should have?
- How should sales and inventory levels vary from week to week throughout the promotion?
- How do I get rid of everything, including furniture and fixtures?
The answers to these and many other critical questions will vary from client to client, based on rigorous due diligence and comprehensive review of day-to-day results. When you do a normal month’s business in two days, your sense of time needs to contract proportionately. More important decisions need to made in shorter time frames.
Most established apparel businesses can sell considerably more inventory in a closing sale than they normally carry. Managing this opportunity optimally requires the “do it yourselfer” to temper his enthusiasm with deference to the dangerous risk of debilitating markdowns and ending inventory. Loading up with available consignment merchandise from cooperative vendors may help, but the goods need to be hand selected (not necessarily what the vendor must move), costed properly to allow for acceptable margin at deep discount and deployed across classifications that blend with existing inventory to present to the customer a proper balance of what he seeks. The best outside experts provide balanced enhancing consignment inventory across clothing, furnishings, sportswear, women’s, and kids’ apparel when appropriate to their client stores running promotional sales.
David Natelson can be reached by email at dhnate@natelsonsInc.com.Back to top
After my December Winter Clearance, January Further Markdowns, and February President’s Birthday events, I still have unwanted goods left over. What should I do with them?
One of the casualties of the current downturn is the virtual disappearance of the jobber market for “store stocks” or merchandise that has previously been sold in stores. What once may have attracted offers of 10% to 20% of retail would now be better donated to the charity of your choice. We have seen similar erosion in recoveries from Consolidation Liquidation Sale Events (off premises joint effort commingling), Consignment Outlet Stores, and EBay type internet auctions.
The answer, then, is to take the necessary steps BEFORE the first Winter Clearance Sale begins so that all your merchandise goes out the front door of your store in a customer shopping bag. Borrow two pages from the liquidation specialist’s handbook: Perfect merchandising is defined as every s.k.u. moving at the same rate of sale, and the first markdown is always the least costly.
Common mistakes to avoid:
- Labelling your store as strictly “regular price” and not displaying markdown inventory at certain times of the year.
- Taking across the board % markdowns at clearance time without regard to the desirability of the item.
- Letting your cost dictate your markdown price instead of what the customer will pay.
- Allowing vendor substitutions or short shipments without demanding return or markdown allowance.
- Ignoring the capability of your merchandise information system to broadcast early warnings and target for you the best customers for your worst goods.
David Natelson can be reached by email at dhnate@natelsonsInc.comBack to top
My store can use a facelift, and I know that a Renovation Sale can drive additional business and help my cash flow. When is the best time to plan the construction and the sale?
The best-case scenario for planning construction or any other interruption of normal business always takes its lead from how to best maximize gross profit dollars or, more aptly in this instance, how to minimize the potential loss of gross profit dollars. The key question is during what time frame would business disruption have the most adverse effects on the business? Arguably, interruption at the commencement of the retail season will do the most harm to the business; accordingly, that’s the time not to plan construction.
Given the limited window to sell goods at full margin anyway, shortening the retail calendar due to construction would put the renovating retailer at risk with the financially strapped store that has new season shipments held back for credit reasons. In both cases, competitive disadvantages will be caused by the late start to the season—whether it be shortened opportunities for high margin selling (or conversely, a longer % of the season goods sell on sale), or worse, losing customers to competitors that fill the demand for fresh product early in the season. Accordingly, for a conventional mens store this means that construction, depending upon the season, should be completed no later than April 1st or October 1st, and preferably 15-30 days prior to that, given likely set backs in construction schedules.
The flip side to the construction schedule is how to maximize gross profit dollars prior to the period when business is disrupted. The anticipation of significant changes in the store environment creates an opportunity to conduct an extraordinary promotional sale. A Renovation Sale serves both to give advance notice to customers about the exciting upcoming plans for the store as well as to realize a competitive advantage by offering earlier-than-usual markdown opportunities due to the shortened retail calendar.
The best time to plan the sale has much to do with the financial health of the store. The healthier the store, the later the sale should commence and the shorter the sale period. Depending upon how long construction is expected to take, commencing a sale 15-30 days before typical clearance time will provide unique opportunities to capitalize on store goodwill to drive sales far in excess of last year business. If the store is experiencing downward sales, using a longer promotional period under a legitimate renovation theme will maximize the chance to thwart downward trends and raise cash.
Rick Natelson can be reached by email at mlnate@natelsonsInc.com.Back to top
Several weeks ago I read with interest your comments of common characteristics of failed stores. What do I need to do so my store doesn't become one?
Thanks for your interest. Securing adequate capital, adapting to change and maintaining proper focus are the goals. Like most well-intentioned disciplines, the problem is figuring out how to prevent falling off the wagon. I’ll suggest a few tips for your consideration.
First, keep your eye on the ball… and the name of the ball is ROI. Loyalty is a fine characteristic in personal relationships; however, loyalty that doesn’t provide adequate return on investment, whether it be an old-time vendor, employee or associate, does not perpetuate a business. Watch your markups, identify your fast and slow sellers, budget your expenses and measure your marketing strategies. Keep your customer motivated to frequent your store by flowing exciting new product and creating a satisfying shopping environment. And most importantly, control your inventories and don’t buy more than you can sell profitably.
Second, ask the right questions. The “SPICE” test (store, profits, inventory, customers, employees) is a good starting point. Is my store enhancing customer traffic, whether through unique events or positive shopping experiences? Have financial arrangements been secured to guarantee timely payments to vendors? Are classification sales forecasts being revisited monthly based on what customers are buying (or not buying)? Have initial markups been competitive? Have alternatives for high markdown items been explored? Are customers adequately profiled with respect to their individual wants, needs and circumstances; and do you communicate with them on a regular basis? Do employees understand the store mission and are they team players? Is the selling staff incentivized with realistic sales goals?
Third, pass the “not about me” test. Treat your store as a business, not a trophy. Ask yourself what I need to learn next, not how much I already know. Pick others’ brains and gather enough information to make smart, business decisions. Identify change quickly and don’t get captivated by old habits. Come to the realization that the best ideas often won’t be your own.
Rick Natelson can be reached by email at email@example.com.Back to top
Your company, Natelsons, has worked with retailers on hundreds of sales; but a sale is a sale. What makes one sale more productive than any other?
A: Every retailer conducts promotional sales events to convert inventory into cash. Some stores utilize sales events only during seasonal clearance times; others tend to run sales more frequently throughout the year. Some sales events, however, fall outside the normal course of business and generate extra revenues over and above the norm. We call this occurrence the monetization of goodwill.
Goodwill is vaguely defined as what a willing buyer would pay for a business in excess of its book value. Even without a willing buyer, a store owner can tap into the value of its goodwill by conducting an extraordinary promotional event. All things being equal, customers will prefer to buy at their store of choice. Typically, however, unless the customer’s need arises, there is no sense of urgency.
Milestones or major changes, e.g., a retiring owner, an expiring lease, a move to a new location, an unusual shortage of cash to pay creditors, create unique cash raising possibilities by motivating present and potential customers with a distinct sales pitch yielding unusual benefits. But this only happens if management takes the initiative to recognize the opportunity, define it and send that message to the community of prospects.
The size and quality of the store’s customer list enhances goodwill because it provides the most efficient access to an audience that already has a favorable bias toward the store. If the message is compelling, the customer will plan a visit as soon as possible. He or she may phone a friend before or after the visit. Ideally a buzz will filter through the community with a ripple effect beyond the core customer population.
The message conveyed must be credible in both tone and substance. Honesty is a virtue—whatever the scenario, the stated facts must ring true. A personal telephone call, a first class letter in a sealed envelope, an e-mail message all have the potential to convey sincerity and urgency from a familiar source. These media have the advantage of exclusivity and intimacy.
The storehouse of goodwill, of course, can be depleted inadvertently. Whenever a customer is disappointed, i.e. something about the offering was either overplayed or otherwise appeared less than expected, store credibility and likewise goodwill will have been damaged. If, for example, the merchandise on hand is not up to standard, expectations will have been dashed and goodwill dissipated. The most damaging of all disappointments is the event that turns out to be a sham.
Appraising the goodwill of the store is necessary for an accurate forecast of the sales potential of the event. From the forecast flows the budget for merchandise, advertising and other expenses. From the initial concept and themed message flow the window and banner signs, the point-of-sale signs, the newspaper publicity and the more strident media advertising.
The amount of cash realized from these out-of-the-ordinary promotional sales events is directly related to accumulated store goodwill. By monetizing goodwill, these sales differentiate themselves from ordinary clearance sales.
Rick Natelson can be reached by email at mlnate@natelsonsInc.com.Back to top
Q: Why do people hire firms like yours? Aren’t you a service for failing, cash-starved retailers?
A: Retailers whose income statements bleed red ink are certainly candidates for promotional sale consultants like Natelsons, but financial distress is only one of many conditions that may lead a retailer to the opportunity of running a short term cash raising liquidation event.
“Relocation” sales, enabling a retailer to preserve his best assets and liquidate his most distressed, are increasingly popular in today’s volatile real estate environment. Whether or not a store is profitable, changing demographics and motivated landlords may enable stores to take advantage of a powerful sale handle, position themselves more conveniently to their client base, and lower their operating costs for future increased profitability.
Successful multi-unit retailers may have difficulty replicating their winning formula in each of their locations. Personnel, competition, or lease term concerns may make the “Store Closing” sale a necessary strategy to strengthen the company when relocation options are not readily apparent.
Even the most successful and well-heeled retailers may reach a point in their lives when they want to cash in their chips and smell the roses. In the absence of a younger able family member, a cash rich employee, or expansion minded competitor, a “Retirement/Going-out-of-Business Sale” enables the storeowner to give his customers and himself a celebration, both ceremonially and financially.
In fact, over the last five years, more than 60 percent of the retailers who hired Natelsons for promotional sale assistance were financially capable of handling the sale themselves. Circumstances brought them to the point where the sale was an appropriate strategy, and rather than risk their wealth in uncharted waters they chose to rely on the guidance of experienced professionals to make the most of their opportunity.
David Natelson can be reached by email at DHNate@natelsons.com.Back to top Back to top