How To Review your 2020 Business
By Jim Lewis, CEO Enhanced Retail Solutions LLC
While we tend to focus on more forward-looking analytics, part of our discipline of planning schedule includes conducting a year-end review of each retail account. While most of us want to forget 2020 and never mention it again there are some takeaways that could be helpful in the future. We hear often- “what was the planner thinking when they placed this buy”? A lot of thought and analysis may have gone into a decision- only to be forgotten the next time a buy is placed, or performance doesn’t match expectations. Keeping good notes is critical- not only for justification, but if a similar situation occurs again, results can be measured and studied to determine if the same logic still applies. Similarly, while we hope 2020 was an aberration it can serve as a model of how things changed and trended as the pandemic set in. If such a time occurs again, we might be able to act with more confidence based on past information.
It doesn’t have to be fancy- just enough to provide key, actionable takeaways. The ideal business review contains 5 key areas: Category growth or decline, program rankings, eCommerce vs. brick & mortar, winners & losers and store execution. Let’s look at each one in more detail.
- Category Growth/Decline: Going after the growing businesses is just as important as not investing in the declining ones. There are various reasons why one category goes up or down- you’ll know the specifics. We like to compare receipts, unit and dollar sales and the average selling price (out the door). Compare the percentage of receipts for a category against its percentage of sales. Did it pay off? Did sales revenue increase or decrease- were prices more elastic in one category than another. Was any specific performance related to delivery issues? Take what you learn and create plans by category.
- Program Rankings: In this case I like to take merchandise statements within each category and rank them on unit sales, dollar sales and sell through. It’s a level up from SKU rationalization- get a sense of how many programs were profitable and necessary. Be sure to include the store count when reviewing. Often overlooked, it helps equal out performance and may reveal opportunities.
- Channel Review: I recommend taking your program rankings and adding the percentage of sales by channel. What trends occurred? If you can look at the data by month it may help reveal if a trend was short term or natural for a given program. Ask your buyer how much of their overall business is online vs. brick & mortar and compare your results to that. Again, it might reveal specific opportunities and help decide how to more efficiently allocate inventory (more on that later).
- Winners & Losers: You probably have a good handle on what worked and what didn’t but depending on how many SKU’s you have it could be deceiving. If you’re products are fashion driven- and not replenished- look at the first 8 weeks of selling rather than a season or year to date number. I create 3 independent rankings of the 1st 8 weeks unit sales, dollar sales and sell through. Then I assign weights to each one- 20% for units, 30% for dollars and 50% for sell through. Depending on what the goals are, use what makes sense for your business. Once I have a composite ranking, I do a final rank which I then use to pick my winners and losers. From this point, put your spreadsheet away and simply pull images of your winners and losers and put them on a board. You might be able to see commonality within those 2 groups which can help your product development team design more winners.
- Store Execution: With all the disruptions and closings we had in 2020 this is more relevant than ever. Being able to quantify lost sales due to low (or no) inventory by location helps us to determine future needs. It also helps catalog which stores generated business, and which didn’t. This analysis can take time depending on how many SKU’s you look at, and how many stores it’s allocated to. I take 3 or 4 different time frames- last 8 weeks, mid 13 weeks, etc. Then check sales and on hand by store. If a store ran out of stock (or had just 1 unit) we assume some business was missed. We then look at week’s when the store had inventory and determine what their rate of sale was. For example, when in stock if a store sold on average 6 units per week, we use that as the rate of sale. We then multiply the rate of sale by the number of times that store was out of stock. Now add up all the weeks and stores and you have a ballpark of what was missed. Identifying those stores that were out in several items could indicate an opportunity for model changes. Retailers use different methodologies for allocation. Sometimes the brand or product type doesn’t necessarily align with that. An opportunity may exist to optimize allocation for those SKU’s (such as Vendor Managed Inventory). This also serves as an indicator of what the thresholds are- low and high- for future programs.
We recommend suppliers conduct these reviews and share with their buyers, at least the key takeaways. For best practices or an example format or if you need help in putting together an analysis like this, please reach out to us.