or one that you want to phase out
after its primary selling season? Some
spas want to start a new season by
looking at all the options, including
new products.
once these questions are answered,
you get a feel for which months you
are now ordering. it could be for the
next month, one month six months
from now, or for the next six months.
once you’ve estimated how much
inventory to order, you’ll make a
similar estimate of what your sales will
be. This will tell you how much of this
moisturizer you are going to need to
order to produce these sales over the
time span you’ve decided to order for.
Got all this information put together?
Let’s take a moment to answer a
critical question. your spa will need to
have multiple open to buy categories.
how many? i will leave that for you to
determine, but i will give some guide-
lines.
most divide their retail into depart-
ments, lines or categories. Similar
products are in each category. i
suggest that as you look at your spa,
no category should comprise more
than ten percent or less than three
percent of your overall product sales.
Go smaller than this suggestion and
you could find yourself with a lot of
open to buys. (The record i’ve seen was
287 categories! Think of how much
time you would spend at the desk
managing all those categories.)
using our guidelines, your spa should
have somewhere between 10 and 34
open to buy categories to manage your
inventory. for example, your
categories may be cleansers, toners,
moisturizers, serums, masks, scrubs,
shower gels, soaps and moisturizers.
you’ve created your categories. you
“While budgeting
and cashflow
planning are
important
components in
resolving these
worries, a proper
inventory control
system is the first
tool that you
should use.”
know the timeframe you’re ordering
for and your sales goals for that
timeframe; therefore, you know how
much to order. now, you can begin to
put together the open to buy.
There is one last item to be
considered: if you are willing to say,
“we are sold out for the season.”
always having enough inventory on
hand is a very costly proposition. for
example, if a florida spa knows they
sell few serums to summer tourists,
they would not likely fully restock, or
reorder at all, serums in april.
While customers may then go
somewhere else to get their serum,
you have to ask yourself: are these
sales worth reordering that much
merchandise? other spas are going to
be discounting their excess
merchandise at the end of a season. it
is challenging to try to sell at full
margin when someone has already
began discounting to get rid of
inventory.
instead, what if you were selling at
full margin and then simply ran out?
Granted, you would miss some sales,
but how many of those sales would be
at full margin and how many would be
at a discount? When discounting any
low-margin items, you can quickly find
yourself selling items at below cost.
This means you are eating away the
margin you earned on the items you
did sell at full price.
and if you decide to reorder a dozen
bottles of serum and sell one, how
much is it costing you to have the
remaining eleven bottles sit until sales
pick up again next fall? The money
spent on those unsold serums could be
better allocated elsewhere.
There are a couple of questions that
probably still remain. how often
should you calculate open to buy?
While monthly is the traditional time
frame, you may find that this is too
overwhelming and want to use bi-
monthly or quarterly.
how should you calculate all of this?
you can get by with something as
simple as a columnar pad, pencil and
calculator. if you are comfortable
working on your computer, using
microsoft Excel is ideal. This article is
just a primer; there is more detailed
information and an “open to buy”
calculator at www.profitsplus.org that
you can use to get started. if you
attended my session on inventory
control last year in Phoenix, this is the
same calculator that was used in that
class.
consider that 54 percent of
businesses that fail do so with a
financial statement that shows they
are making a profit. Their problem is
that they have no cash available to pay
bills. By managing your inventory
using the open to buy method, you’ll
have more cash on hand and less tied
up on your shelves. n
tom shay is a small business inventory expert and certified speaking professional (cSP) based in St.
Petersburg, florida. Tom spoke at the 2018 iSPa conference & Expo.
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