Retail SMART

Budgeting - Clearance Sales

 

By: Dennis A. Conforto
Chairman & CEO of A-Z Media Group, Inc.


dennisFor the month of November, we have been discussing the entire forecasting process that makes up the budgets for the following year. Today we are going to discuss forecasting your year-end clearance sales for 2011. Retailers love the last two months of the year because of three great selling holidays - Thanksgiving, Christmas and New Years. In many ways that 45-day period makes or breaks a retailer’s entire year in terms of profit. Consumers gear up for the shopping holidays because they have been trained that it’s a great time to save money on products they want for themselves or for others.

If I were to ask a scrapbooking retailer what their biggest challenge is today, 99% of the time it is going to be, "we are just not doing the volume we need to stay in business." I believe that this has occurred because in the past, scrapbooking retailers have grown their business by word of mouth, rather than building the business on hard hitting promotions. I think many retailers are afraid to promote hard for several reasons:

1. They don’t know how.
2. They don’t like it - they like cute and clever promotions.
3. They are afraid that lower margins mean lower profits and do not see that lower margins are offset by higher sales.

Scrapbooking stores need to learn how to hit harder with their promotions. It’s almost like many of them are afraid to have a real sale with real savings. Clearance sales are critical to your success because they can solve a number of issues and create new consumers to build your business on.

Clearance sales are just that - clearing out the items you need to sell to create the cash flow and profits you need to buy new products. Clearance sales are not “cute,” they are hard-hitting. They are not small savings, they are huge savings. They don’t last all month, they last a weekend at best. Discounts can be as much as 70%.

Recently, I reviewed promotions at several scrapbooking retailers and at best, these promotions were very weak. They missed using a huge tagline like “This weekend only, up to 70% off!” or “One day only - buy one, get one free!” Now realistically, anyone can give products away; the question is, how does a retailer create a sales event around some items and yet sell all types of items?

I would venture to say that 50% of the inventory in a typical scrapbooking store could be classified as non-performers. Meaning that holding onto the inventory while you wait for it to sell at its full price, is now costing you more money than it would to discount the inventory. Most retailers don’t understand that it costs an average of 37.5 cents on every dollar in inventory that is not selling. Plus the opportunity cost of not having fresh inventory is even higher because that affects your top revenue line.

Year-end clearance sales for large chains are planned months in advance. They spend the time understanding which products need to be marked down, and how to use those items to sell other products. Marked down items are then placed all over the store to ensure that consumers are seeing all of the products that are for sale.

You have three huge opportunities before the the end of the year to get rid of lots of inventory, and you can provide additional incentives to the consumer for buying more. For example consider giving consumers an extra 5% off for all orders over $100. Some retailers go out of their way to make special purchases for these events, clearing out the inventory of the manufacturers who find themselves in the very same pickle.

At the end of the day, the consumer really controls pricing. If something is marked too high, they don’t buy and you don’t sell. What retailers do control is how they create promotions that drive in traffic so that they can create enough volume to earn a profit. Revenues create profits; margins do not.

In truth, promotions are the lifeblood of any great retailer. As this weekend approaches, see who has the best promotions within your marketplace. Look at the headlines, the taglines, the colors, the timing and the savings. In doing so, you will see how auto dealers, furniture stores, consumer electronic stores, department stores and specialty retailers use promotions to bolster their business.

If you would like to comment directly to Dennis about this article or have him address a subject matter in future articles feel free to email him directly at dconforto@a-z.com.