May 22, 2013

Merchandise Forensics: Top Items

It's the "hip" project right now ... identifying the reason why the business is struggling.

There's usually two reasons.
  1. Inability to acquire new customers at an acceptable cost.
  2. A decline in merchandise productivity, usually caused by a failure to develop highly productive new items.
Here's a tidbit for you.
  • Calculate the average demand you generate, per item (say it is $12,000).
  • Multiply this rate by 2.5 ($12,000 * 2.5 = $30,000).
  • Let this be your "criteria for success".
In other words, in our example, we want items that generate at least $30,000 of annual demand.

This threshold often accounts for items in the top 10% to top 25% of the merchandise productivity spectrum, so you're looking at really productive items.

Now, for the past five years, identify how many new items ever achieve this level of productivity?  Is the rate increasing, or decreasing over time?  Is the quantity increasing, or decreasing, over time?  How many years does it take an item to hit this threshold?  How many years does it take for an item to fall below this threshold?

The secrets to your business are outlined in the questions above.  Combine this information with your ability to acquire new customers at low costs, and you're well on your way to understanding/fixing the dynamics of your business.