Tip of the Week

Retail SMART	Budgeting - Clearance Sales
	By: Dennis A. Conforto Chairman & CEO of A-Z Media Group, Inc.

For 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 2005. Retailers love the last two months of the year because of three great selling holidays - Thanksgiving, Christmas and New Year’s. In many ways that 45-day period of time makes or breaks a retailer’s entire year in terms of profit. The consumers will 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 want for others. Scrapbooking stores need to learn how to be hit harder in 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 real issues and create new consumers for you 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 long they last a weekend at best. Savings go up to as much as 70% off. Recently, I have reviewed promotions at several scrapbooking retailers and at best these promotions are very weak. They miss the huge tag line 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 cost you 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 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 the consumers are seeing all products that are for sale. You have three huge opportunities before the year ends 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 that are over $100 dollars. Some retailers go out of their way to make special purchases for these events clearing out the inventory of the manufacturers who have found themselves in the very same pickle. At the end of the day, the consumer really controls the 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. 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 do to stay in business." I believe that this has occurred because scrapbooking retailers have grown their business in the past 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. In truth, promotions are, at the end of the day, 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 as the life blood for their business. Looking at and learning from other great promoters is part of what being business SMART is all about.