 For Every Season, Turn, Turn, Turn Paul Erickson Says Inventory Is Your Key to Success You’ve artfully finessed your store displays, carefully trained your sales staff and done everything you possibly can to make your shoe store shine. But have you given enough thought to your inventory? “Inventory is the largest asset on your asset sheet,” says Paul Erickson. “It’s vitally important for shoe stores to understand the concept of turn. Some shoe stores don’t even get two turns for the year and have six months or more inventory at any given moment, and that can cause retail failure.”
What some retailers fail to realize is that time is not on their side, at least when it comes to moving product. “It’s so important to understand the whole concept of time and the impact that has on your turn. A lot of retailers think in terms of quantity and that’s fine, but successful retailers who have growth in sales, high profitability and good cash flow think in terms of time.” The faster a retailer turns his merchandise, the more time works in his favor. “Their number one goal for a smart retailer is to turn inventory. Margin and revenue growth are below that. How fast you sell ensures product freshness and a good cash flow. Turnover doesn’t appear on a profit and loss statement, but it’s the most important thing for retailers to think about.”
To Erickson, turning goods is not about markdowns. While sales may bring in cash, they aren’t great for your bottom line. “Anyone can give away goods. Maximizing your ability to turn is about selling at a profit.”
 So, how do you get time and turn to work in your favor? Toss aside the usual fall/winter and spring/summer launch schedule. Even if some footwear manufacturers work on that schedule, you can’t. “If you bring in new product every three months, you can get four turns a year. Sandals sell in the Northern tier of the U.S. for about three months. The same is true for winter boots. You’ve got a short window available to you to sell profitably. And after that window closes, you start feeling pressure from chains and department stores to clear inventory. The selling cycle is much shorter than people realize.”
One key to keeping inventory flowing is to make replenishment part of your business plan. “You don’t have to buy everything all at one time. New Balance has a replenishment system. They are a size and width business, and they have the ability to get product to stores. The two-turn idea is very antiquated. Retailers today have to understand that inventory must be turned over faster than it was in the past. You can’t sit with six months work of unsold product in your store. The closer to the season you buy, the faster you can sell it and the better off you are. A retailer’s financial health is in direct proportion to what’s new in the store. There is no such thing as business as usual anymore.”
What happened to business as usual? “It’s a different world we live in today. In the past, there wasn’t the competition there is today.” The good news? “It’s never been easier to compete with chain stores and department stores than right now. The chains are taking their footwear assortments and culling them down. They’re playing it safe, and buyers have been told not to take risks. Independents have an open field to be the real fashion leaders right now. It’s a great opportunity. These are people who got into footwear because they love shoes, so they’re going to show consumers something new and different that they won’t see at Macy’s.
 It’s easy to compete with the chains, never been easier than right now. The chains are now taking their assortments and culling them down. This is the season of beige and black at the chains in apparel, playing it safe. Buyers are to buy safe and careful and not take risks. What you’ll see is that showing up in inventory. If independents have open field to be the real fashion leaders right now. They have a great opportunity, not to play it safe in terms of inventory and new lines, but play by rules in terms of quantity. You have to play by the rules. Have to gear around how long it takes you to sell it. Creativity, they got into footwear because they love shoes, won’t by buying basic penny loafers, show something new and something different you won’t see at Macy’s.
Sitting with too much inventory is a huge problem. And when you have 30 to 60 days to pay your vendors, but it takes six months to sell the product, isn’t that a problem?”
The problem may not be readily apparent to young retailers who may have ample fashion sense but little business experience. “There are some retailers who love shoes, but what happens is they invest in inventory the way they invest in their own closets. They have no concept of how many pairs they need to sell and how many they need to stock. The bank will only give so much money right now, and if you want to keep customers loyal, they’d better be seeing something new each time they come in. If the same product is still sitting there collecting dust, they’ll get the message not to shop at that store as frequently. If you have a better flow of newness coming into your store, you won’t have as many markdowns later.”
One talent some retailers need to work on is a surprisingly simple one. “Not only do you need a good budget, but you need the ability to say no. You have to be brave to be a retailer.”
Bravery is only part of the necessary skill set, however. “There are several reasons why retailers get overstocked. One is having a bad plan, and the second is buying from too many vendors. They get overassorted. They add vendors to their store, but they don’t delete others. It’s always a good thing to add two or three brands a season to keep your product mix fresh, but you’ve got to say goodbye to somebody, too. And that’s hard for some retailers to do. But you have to be disciplined to survive.”
Buying from too many vendors isn’t an obvious mistake, but it can still come back to haunt a retailer. “When you buy from too many people, you buy less from everyone and you have less meaning in the image you present to your customer. You want to buy deeper into key vendors instead. Trying to be all things to all people is always a mistake. Eighty percent of all shoe store owners are out of business in the first five years. The mistakes they make are generally around inventory, and they keep making those mistakes over and over again.”
Everyone makes mistakes, of course. The difference between those 20 percent who survive and the 80 percent who don’t is simple. “When you make a mistake in retail, it’s courageous to admit it. Let’s say you thought something was going to be the hot style, and three months after delivery you’ve only sold 5 pairs out of 100. What do you do? You learn the lesson. The customer has spoken, and you need to pay your tuition by taking the markdown, then really learning why that shoe didn’t sell. It could be as simple as the price. Maybe it’s a shoe your customer would buy at $199, but not at $300. Admit your mistake and take action immediately. The key is to keep inventory turning. It’s a proven fact that overstock produces markdowns, increases the cost of goods sold and causes traffic to fall. Your customers will learn to wait for a sale.”
Meet Paul Erickson at “Your Inventory Heart,” a 60-minute seminar at The WSA Show, Aug. 1, at the Las Vegas Convention Center. The seminar will explore alternative concepts, techniques and formulas to improve cash flow, gross margin and sales. Attendees will learn specific strategies to begin implementing in their stores immediately. For more information, go to www.wsashow.com.
Paul Erickson presently serves as senior VP, client services of RMSA. Based out of Minneapolis, Minnesota he has served retail clients throughout the United States, Canada and the Caribbean. He has conducted seminars and workshops to such groups as National Shoe Retailers Association (NSRA), New Balance, International Kids Expo, National Sporting Goods Association and Intuit Software. He has been featured in Fortune magazine and on the CBS Evening News.
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