Five Strategies to Increase Retail Profits

Five Strategies For A More
Profitable Retail Operation

Five Strategies for a More
Profitable Retail Operation
• Agenda
1. Create a “Lean & Mean” Inventory
2. Utilize Initial Markup and Margin Builders
3. A Correct Markdown Strategy will Make the Retail
Business More Profitable
4. Implement a Focused Strategy and Staff to meet
Retail Sales Budgets
5. Low Cost Solutions for Keeping Your Shop Up-to-
Date and Improved Visual Presentation

“Lean & Mean” Inventory
• Key Concepts to Control Inventory:
1. Evaluate current inventory. What is left that you can
extend into next season and supplement with new
purchases?
2. Small frequent deliveries of merchandise and
buying deeper with successful vendors. Adjust
orders accordingly based upon in season sales.
3. How did vendors perform in retail sales, profitability,
unit sell thru? Be prepared with a review of
performance with sales rep/company
4. Create strong vendor partnerships to negotiate
better pricing, priority shipping, a discount program
that fits your unit/sales requirements, merchandise
return options, off-price priority, and special events.

• Develop a comprehensive financial plan:
1. Time to use an Open To Buy! Can improve
profitability from 5% to 8% on average!
a. Forecasting:
1. Retail Sales – 2008/2009 history, flat, increase or
decrease to actual
2. Cost of Sales – 2008/2009 history, adjust out excessive
markdowns, focus on maintained markup
3. Average Inventory – Simple method
Cost of Sales Turnover Goal = Average Inventory

Forecast Example

Determing Average Inventory using Turnover Goal
Department Retail Sales $ Sales % Turn Goal COGS Cost of Sales Avg Inv-cost
Golf Equipment $45,000.00 15% 2.5 80% $36,000.00 $14,400.00
Golf Accessories $93,000.00 31% 3.0 70% $65,100.00 $21,700.00
Men's Apparel $114,000.00 38% 3.3 68% $77,520.00 $23,500.00
Women's Apparel $48,000.00 16% 3.0 65% $31,200.00 $10,400.00
Total $300,000.00 100% 3.0 70% $209,820.00 $70,000.00

1. Time to use an Open to Buy:
a. Forecasting continued
1. Planned Inventory Levels – 2008/2009 history, capacity, %
of Sales to % of Stock
2. Monthly Purchasing Budget Formula
January
Planned Beginning of Month (BOM) Inventory at cost $42,000
Minus Cost of Goods Sold for the month - $ 8,400
Revised Inventory = $33,600
Minus next month’s BOM planned inventory at cost - $49,000
Equals planned receiving at cost for the month: = $15,400

1. Retail Budgets: Planned receiving, update with
orders, review open to buy

Total Store Jan Feb March
Beginning Inv. 42000 49000 63000
Es t. Sales 12000 15000 21000
COGS 8400 10500 14700
Adj. Inv. 33600 38500 48300
Planned Inv. 49000 63000 77000
Planned Rec 15400 24500 28700
Total Purchas e Orders 13,000 17,900 16,700
Open To Buy 2,400 6,600 12,000

1. Time to use an Open To Buy
a. Update key components every month
a. Retail sales, cost of sales, monthly inventory, on
order received, on order not received.
b. Account for shrinkage, physical inventory vs. book,
any non-traditional sales.
c. Are you on plan? If not why? What adjustments
need to be made?
d. Communicate plan of action and implement
immediately.

Initial Markup and Margin Builders
• Profitability begins with the right markup plan
for your retail business
• Types of Markup/Pricing Programs
a. MSRP – Manufacturers Suggested Retail Price can range from
40% to 60% depending upon item.
b. Keystone Markup – This is a 50% retail markup up.
c. Keystone + - adds additional dollars to the base keystone
markup. Keystone +2 would be a 50% markup plus $2
d. Mill River – Term coined by a golf club designating a cost plus
pricing program. Typically, cost + 10%
e. Member Pricing programs – Term coined in private club sector
referring to a discount members receive on their purchases. i.e.
20% off suggested retail, or a keystone markup

• Margin Builders
a. Off-price goods – vendors offer merchandise on sale to
accounts. Be sure to be on list for first offerings
b. Volume purchasing programs – qualify for reduced
wholesale pricing when meet volume requirements. Be
sure to evaluate units necessary to qualify can be sold in
reasonable amount of time.
c. Early payment discounts – Be sure to take advantage of
discounts for paying invoice early. i.e. 2% net 10 would
qualify you for a 2% discount from invoice if paid within 10
days.
d. Custom programs negotiated by facility – Ask for help with
shipping, logo costs, discounts for an additional order or
units above last year, fixture costs, etc.

• Determine correct markup for your
retail business
a. What is your net profit goal?
b. What are operating expenses the golf shop
income needs to pay for?
c. What is the markdown/reductions goal?
• Formula
Profit +Expenses+ Reductions = Initial Markup%
Retail Sales + Reductions

• Markup Calculation - $300,000 Retail Sales
1. Net Profit goal for the total golf shop is 15% of the total retail income or
$45,000.
2. Operating expenses are 20% of the total retail income or $60,000.
3. Markdowns/Reductions are 25% of the total retail income or $75,000.

% method: 15% + 20% + 25% = 60% = 48.0%
100% + 25% 125%

$ method: $45,000 + $60,000 + $75,000 = $180,000 = 48.0%
$300,000 + $75,000 $375,000

In this example, the total golf shop needs to have an average initial markup of 48% to
meet a total golf shop net profit goal of 15%

• How do I use my initial markup percent to
determine the correct retail selling price?
Divide the known cost price of the
merchandise by the cost complement of the
markup goal.
100%
Markup Goal - 48%
Cost Complement = 52%

• Correct way to use initial markup percent:
• Calculation using our quick tip:
Wholesale Price $23.00
Cost Compliment  .52
Original Retail Price =$44.23

Round this figure up to an even $45.00 for pricing
purposes.

• Incorrect way to use initial markup percent:
• Why can’t I simply take the wholesale price and multiply
times 1.48? (100 plus the markup?)
Wholesale Price $23.00
100 plus markup x 1.48
Original Retail Price =$34.04
Round this figure up to an even $35.00 for pricing purposes.
• Wait, $45 retail price vs. $35 retail price, how come it is so
much different?

• Cost Markup – When you use the markup plus 100,
this is determining the dollar amount of markup needed
based upon the wholesale cost.
– $35.00 – $23.00 = $12.00 markup
– $12.00 $23.00 = 52% markup as a percentage of the cost
• Retail Markup – By using the compliment of your
markup you are determining the dollar amount of markup
needed based upon the retail price
– $48.00 - $23.00 = $25.00 markup
– $25.00 $48.00 = 52% markup as a percentage of the retail price

Markdown Strategy
• Markdowns are a necessary business
process in any retail business. Pre-
plan your Markdowns!
1. Establish a markdown budget per
month/quarter/year
2. Can spend each month as necessary to move
slow sellers, or “save” to use for larger sales.
3. Controls the amount of dollars you spend on
markdowns and helps you to implement your
markdown strategy.

Markdown Strategy
• What does a markdown strategy or plan look
like?
Step 1. First start with frequent/smaller deliveries of
inventory!
• If the golf shop doesn’t get overstocked by controlling
flow of goods into the store, you don’t have to take as
many markdowns.
• Work deliveries for softgoods back to previous months
color stories or basics so that you can continue to sell
product at your retail price.
• If purchasing off price goods, factor into your sales
promotions to help pay for markdowns on inventory with
less markup.

Markdown Strategy
• Markdown Strategy cont:
Step 2. Develop plan to I.D. slow selling
merchandise. This is done by determining how
much product you want to sell in a given time period
and than determining your plan of action to make it
sell:
 Time: 4.0 turnover goal = 90 days selling model
 Amount sold: Plan to sell 50% of inventory in 45 days.
 Action: Merchandise not meeting this goal subject
to markdown immediately.

Markdown Strategy
 Markdown Strategy cont:
Step 3. Set markdown plan of action:
a. Rotate/Focus/Signage = 50% sell thru
b. 1st markdown soft sale most profitable
c. 2nd markdown more aggressive
d. 3rd markdown final clearance

Markdown Strategy
• Utilizing your markdown strategy will help you
maintain profit margins and cost of sales goals

100 shirts at a cost or $23.00 and Retail $45 (IM 48%)
Units Dollars Extension Markup
Sales at Retail 45 x $45.00 = $2,025 48%
Sales @ 30% off 35 x $31.50 = $1,102 27%
Sales @ 50% off 20 x $22.50 = $ 450 2%
Total Sales $3,577
Gross Margin $1,277 or 36%
Cost of Sales $2,300 or 64%

 How do Mill River programs or member discount programs affect
your markdown strategy?

Staff Strategy and Training
• Every golf shop must have a program in
place to TEACH employees how to sell
and service customers.
– Step 1 : Product Knowledge
– Step 2 : Sales training
– Step 3 : Visual display training
– Step 4 : Sell outside the box

• Step 1 : Product Knowledge
– Staff needs to learn features and benefits of the products which
have been purchased to sell in the golf shop!
– Beginning of season give staff a list of vendors and products
along with descriptions/examples of what is coming in for the
season
– Set up a product knowledge training schedule with key vendors.
You can allot 1 hour per vendor to educate the staff. This is an
all day product knowledge training approach
– You can also set up smaller training days like hosting many
demo days. I.e. on the days you are having demo days have the
staff and vendor arrive ½ hour early to review products which
customers will be able to demo for the day
– Be creative. Assign each staff member a vendor to research and
have them do the training/sharing of information in a staff
meeting once a week

• Step 2: Sales training
– You can NEVER assume your employee’s know how to sell!
– Selling is outside most peoples comfort zone so you have to help
them become proactive and proficient
– Empower them with the knowledge and confidence to be
successful at selling by providing recommended articles and
small books on selling that you will quiz them on or do role
playing with them to have them put into practice what they
learned
– Hire secret shoppers to see how your staff handles customers
and sales when you are not around. This is not meant to be a
negative experience, rather to give you information about how to
make your staff better!
– A key component to successful selling is for staff to be ON THE
FLOOR not BEHIND THE COUNTER and working with the
product. Straightening displays, putting out new product, dusting
fixtures, etc are all great ways to get your staff hands on with the
product and interacting with customers outside the counter

Step 2: Sales training Communicate to Staff
• Back office system that communicates the following:
– Monthly orders
– Vendor
– Color story
– Price points
– Visual Merchandising information/examples

• Women’s Department Spring 2010 Master Calendar:

January

PO# Tehama sp1001
Tehama 1/01-1/15 –
72 pieces
Million Dollar Baby

• Step 3: Visual display training
– Again, never assume an employee knows how to fold
shirts, put outfits together, change a display, etc.
These skills have to be taught.
– At the beginning of the season, maybe in conjunction
with product training, introduce some basic elements
to them of visual display methods.
• Have them practice folding shirts in different ways.
• Give them women’s product and see how they would put
outfits together on a mannequin.
• How would they put a display table together with multiple
products
– Hands on training will give them the confidence to
support key personnel in visual display and
maintenance

WALL TEMPLATE FOR WINDOW BOX PRESENTATIONS

•This clearly style# Style# :
BUTTER KNIGHT 4 shelves
gives visual
direction that
display pair shoes
: : BUTTER WHITE KNIGHT START OF
any staff WALLED
HAT SECTION
member can . . .

setup. GRAY WHITE POMADORI
shirts on straight arms SEE HAT
GRAY POMADORI JANUARY FASHION GROUP PLAN O GRAM
OVERFLOW FOR MORE
DETAILS
MORE
: : JAN

: :

shirts on straight arms

THIS TEMPLETE SHOULD BE USED FOR IZOD G BACK WALL

• Step 4 : Sell outside the box
– One of the biggest challenges a golf shop can have is getting
their core customers to continue to purchase merchandise
– Teach your staff to get to know them and see what other
products you can offer them
• Small business owners are always spending money on logoed
items for marketing and advertising
• Charities and non profit organizations have small budgets, but can
be a great opportunity to sell to if you know a key contact which may
be your customer
• Make sure the staff communicates special pricing to those
customers who may be with a small business or organization that
you offer special pricing on a selection of items
– Need to focus on add on business after you have your staff
trained to be efficient daily in the golf shop operations

Low Cost Solutions to Keep Your Shop
Up-To-Date and Improved Visual Presentation
• What is your shop overall Image?

• Worn Carpet/Traffic
Path
• Dirty and damaged
window coverings
• Dirty and damaged
fixtures
• Chipped stained
surfaces
• Burnt out light
bulbs

Clean House:
• Annual Housekeeping
Process
•Clean carpets
•Fresh paint
•Re-stain fixtures
•Clean/dust light
fixtures
•Replace light bulbs
•Repair, replace,
freshen fixtures and
display props and
accessories


• Visual Merchandising
• Effective Visual merchandising can increase sales 10%
to 50%!
– Must have standards in place
• Brand
• First Impressions
• Purposeful
• Motivating
• Accessories
• Train all staff

• Visual
Merchandising
– Use fixtures to
direct traffic
thru shop
– Create
departments
– Cross
merchandise
– Lifestyle
displays
– 360 degrees
of shopping
– Great lighting
– Clean and
organized


– Evaluate your golf shop space and usage:
• Monthly/Quarterly/Annually
– Traffic flow
– Merchandise allocation on selling floor
– Merchandise retail sales performance analysis
– Focal points
– Overall character of shop
– Lighting needs
– Establish Budget

Too much can mean less sales

Reduce fixture and organize display to
Encourage easy shopping

How much floor space is allocated vs. POS sales

Prime real estate for high margin product
Ability to visually motivate customers to
purchase.


• Visual display
standards
– Industry
resources like
AGM
– Partner with
vendors
– Other golf
shops
– Assign
departments
to teams for
merchandising
– COPY!

Five Strategies to Increase Retail Profits

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