EXPERT OPINION

Cash registers may be ringing like it’s 2007 this holiday season, but footwear retailers shouldn’t let the joyous sound deceive them. “It’s a new retail reality out there,” says RMSA analyst Lewis Cocke. “It all started more than a year ago, when the retail sector first felt the effects of the recession, and it continues to this day. People aren’t buying as much, they don’t buy as often and credit card usage has gone down significantly. A footwear retailer has got to understand that, but they should also know there is a ray of hope.”

That light is shining thanks to the very nature of footwear. “Kids still grow out of shoes, men wear out their shoes and women just plain love shoes,” says Cocke.

But retailers will still want to look beyond reliable consumer demand to keep their businesses afloat in this tough economy. According to Cocke, they also have to keep a close eye on their cash. “Every morning, every retailer walks into their store and checks the balance in their checking accounts,” he says. “They’re always looking at their cash. But many retailers say to me that they never have any. An accountant can tell them where they’ve spent their money, but they also need to plan their cash flow to see where they’ll be three or six months or a year from now. They need to know how to manage their cash. And the best, most important tool to use is a functioning open-to-buy plan.”

That plan will allow a smart retailer to look at every budget item from largest to smallest. “And what they’ll find is that inventory is their largest asset,” Cocke says. “Retailers tend to forget that, but we write a check for inventory the way we do for the light bill, wages and taxes. So it’s critical to have a plan that works.”

So what’s the best open-to-buy plan? Cocke says that answer is different for every retailer. “There are a lot of systems out there and some retailers just use a legal pad or a napkin, but whatever the plan is, it has to get you where you want to go. It should improve your business, not replicate the past. There’s a tendency to do things the way they’ve always been done, but this results in perpetuating difficult situations, like ‘I never have enough cash when I need it,’ or ‘My margins are low because I have to take so many markdowns.’”

Speaking of not repeating the past, Cocke says many retailers have to start thinking about turn in a whole new way. “The average inventory turnover is 2.5 turns per year, which means that inventory stays in a store for five months before it’s sold. Does that sound reasonable? While that’s improved over the past few years, it needs to get better. What if we only bought for four months instead of six? What if we bought more frequently and used replenishment programs?

Cocke says replenishment is key to keeping customers satisfied. "Retailers lose 15 percent of their customers each year to death, desertion or dissatisfaction on the part of the consumer. While lots of retailers think the solution to higher margins is keeping inventory very lean, if a customer sees a shoe in the window and ask for it only to find out it’s not available in her size, even if you bring out five comparable styles, she’s going to be disappointed she can’t get the shoe she wants. Customers in this new reality don’t want to wait and they don’t have to. If you don’t have what they want, you won’t make the sale and you could lose them.”

But what it you predict what your customer is going to want and miss the mark? “When I was in the retail business, I worked for a man who used to say, ‘If you want to know what mistakes you made, look at what you put on sale at the end of the season.’ Everyone makes mistakes, but there’s an awful lot of overassortment out there. Don’t buy from too many sources, because that can cause duplication, make the floor look thin and you can end up not representing enough of your most important resources. It all ties back to your open-to-buy plan. There are tools available to help you stop overbuying, and the right plan will make sure the vendor doesn’t write your purchase order, but you do.”

Lewis Cocke is vice president of client services and a senior analyst for RMSA. He joined RMSA in 2000 after a 25-year career as a retailer, holding positions ranging from store manager to merchandise manager. Cocke brings a broad range of retail experiences to his seminars.

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