Pulse May 2019 - Page 57

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. MAY ■ PULSE 2019 55