By Bill Scott, President, StoreReport LLC
Last week I had the honor of visiting with a company that is opening their first convenience store. They read my book and want to implement my ideas in their store. I am getting an increasing flood of inquiries regarding inventory control, and I am amazed at the difference between existing convenience store operations and new operators that are wanting to start off on the right foot. It is reminiscent of how I originally set up my office.
At first I wanted everything to be perfect, but after over a decade, as I surveyed my environment, what I saw was a horrible mess. I am at a loss as to how it got this way, but I have piles of books and papers, and a wife that nags me constantly to clean it up.
It didn’t happen overnight. Somewhere along the line I must have gotten careless. And carelessness became a habit, and habit led to what I have now—a mess. The only other excuse I can come up with is that my office is haunted, and gremlins are hiding in the walls just waiting for their chance to sneak in and toss everything around.
I equate this to the evolution of a convenience store. At first, the store is a model of perfection with everything in its place—clean floors, well-trained personnel and the proper mix of inventory according to the latest planograms and category management methodologies. Then, little by little, things change. The floors get dirtier, the bathrooms get nastier, the well-trained personnel have long since found better jobs and, somewhere along the journey, profits began to take a nose dive. Even when the tender count goes up, margins on those tenders get worse and worse.
At the point when someone finally notices, instead of going back to the basics, the ceremony of unorganized fiddling begins, as the ‘experts’ take over the running of the stores. But no matter how expert the experts happen to be, in the effort to turn the store around, they are met by a tsunami of resistance. You may have the greatest ideas imaginable, but if you don’t get your employees on board, they will fight you every step of the way. Culture can be deadly. It’s the way we do things and the way we will keep doing things until we are forced to change. We are what we set out to be, and even when we don’t like the results, we will start wars to remain the way we are.
I hate the way my office looks, I am ashamed to have people come in and see it. I know my production suffers, yet every time I try to clean it up, it just gets worse. Sometimes I think the best solution is to throw every last piece of paper in the trash, gut the room, paint it, redo the floors, buy new furnishings and start all over again. But things won’t change until I change my attitude.
In a retail environment, inventory is the major culprit in creating clutter. I have often said, ‘The perfect convenience store is a small grocery store on steroids.’ Inventory should be moving in and out of the store as fast as it is put on your shelves. But having too much overstock results in a corrosive environment that feeds upon itself and ends up being a perpetual mess.
If we are honest, we know that we need no more stock than we can sell BEFORE the invoice comes due. In other words, if we get a delivery weekly, and we buy inventory on a Monday, and the invoice needs to be paid in 10 days, in a perfect world, we should have no more than 10 days of stock on our shelves at the moment the new orders are placed on the shelves.
Overstock is supported by suppliers who are desperately trying to solve their overstock problems by forcing it on you, which have been forced upon them by the manufacturers. The argument goes, ‘If the store looks empty, customers will be put off by the obvious lack of stock on the shelves.’ That’s a ridiculous argument, because overstock doesn’t make a store look full, it makes a store look overstocked, and if getting rid of some of it results in providing you with more room than you need, the art is to redesign the store so it looks good with only the items you can sell.
How do you do this?
The average retailer has double to triple the amount of stock needed to satisfy customer service level for only two reasons:
- They have twice the brands to satisfy their clientele.
- They have far too many items of the same brand in their stores.
The answer to the first problem is to remove the brands that are not selling and expand their product lines to include other brands that will sell, or to make use of the re-conquered space by taking out a few gondolas, or putting in a profitable food service.
The second problem can be solved by following the rule to lower the number of items within brands by stocking only what can be turned before the invoice becomes due. Learn to use your supplier’s generosity to your advantage. Let your customers pay your suppliers by selling it to them before you have to pay for it.
The loss of working capital incurred by overstock pales in comparison to the cost of stocking and managing excessive inventory. As the inconvenience experienced by your customers looking for what they came in to buy, the cost of monitoring for shrinkage and theft of so many brands, the cost of insurance and cleaning and the cost of restocking the shelves adds up, the situation becomes critical.
In short, if you want to make your stores produce a good return on your investment, think about starting over again, using the knowledge you have acquired from your experience in the business. Buy only what you can sell, and sell it before you have to pay for it. The float you are able to acquire from your suppliers is a much overlooked and powerful profit center.