By Jim Lewis, CEO Enhanced Retail Solutions LLC
The concept of key items comes up with just about every interaction we have with a retailer or supplier. They may have different terms for them, but they are talking about the same thing. Never out sku’s. Prime items. Core, etc. No matter what they are called, these are items the customer expects to be always in stock.
However, it is amazing how some retailers abandon the principle of “always in stock” when things go south in their business. They think turning off the replenishment spigot on everything will somehow free up cash and improve the business. The adage “it takes money to make money” has never been truer in this situation.
Mistakes or Less Feet?
I get it- from a high level maybe the inventory is building- which is tying up capital. Is overall traffic down? Or is the consumer not reacting as expected to some merchandise (you bought wrong)? Either way unless you have Apple’s cash, you must take action to make something happen. It always amazes me how a buyer can convince themselves that a poor performer isn’t a problem. They are waiting for everyone to see what they see. That rarely happens.
Letting your stores run out of top sellers and those “never out” sku’s means the customer is walking. And now you have less traffic (and cash) to try and sell them your mistakes at a more reasonable price.
Prioritizing SKU’s and Stores
Not every item has to have the same inventory model. Some may require safety stock while others don’t. And in businesses where it takes multiple SKUs to make a purchase- like bath accessories or window coverings- the model must cover the entire group. This is where rationalization comes into play. Every sku should have a priority assigned to it. I like an A-E model. The A items should never, ever be out of stock. B items are right behind them. Then basically any item that is a C, D or E is less critical to the success of the business and if cuts must be made, look here. Our guide to SKU rationalization may be helpful.
At the same time, you must look at stores and prioritize them as well. Similar methodology will work. Which group of stores should be fed first? You have to decide which KPI’s to measure on. Is it purely unit volume and velocity? Or are dollars or profit generated or more important? Your POS reporting regiment should cover that. Once you prioritize SKU-store combinations, allocate dollars accordingly.
The Immortal Budget
Key item planning doesn’t end with an annual or season assortment plan. Dollars should always be reserved for them. I think retailers that have abandoned that will end up digging themselves in an even deeper hole. These are problems that Amazon and Walmart for the most part don’t have to worry about because of their size.
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