September 26, 2017

What Happens When New Merchandise Productivity Flattens Out?

Here is the base forecast for the business we are analyzing.

The forecast demonstrates that declining new merchandise productivity is a problem.

What does the forecast look like when new merchandise productivity flattens out?

Two things stand out:
  1. New item demand does not grow ... there is negative momentum that has been slowed, but not stopped. We're going to need a productivity improvement in new items to fuel new item growth.
  2. Stopping the new item productivity slide, however, caused existing items to sell better ... up to $144,195,740 from $132,257,778.
Now, these forecasts are subject to the same issues that the "spaghetti plots" are for hurricane forecasts "x" days out. Errors tend to pile on top of each other, and the forecasts become more and more erratic.

But our modeling process suggests something important:
  • If we want existing items to sell well, we need to improve new item productivity.
Tomorrow, I'll run a forecast showing what is needed to get new merchandise totals to grow again.

P.S.:  On Monday, I talked about the four paths we'll take as we move into the future.

  • Find a Partner.
  • Find a Buyer.
  • Do it Yourself, Low-Cost / No-Cost Customer Acquisition.
  • Do it Yourself, Pay Tolls.
So read this ditty (click here). Where does this fall on the continuum? And what business cannot make money on $3,000 a square foot? I have retail clients earning $150 a square foot and they're making money. You can try clever stuff ... but for crying out loud, get the CFO involved early on, ok?

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