USA retailers are facing challenging times that rival anything seen in a lifetime. For the first time, it seems the art supply retail sector is no longer immune from the broader trend. In this dreary environment it’s refreshing to witness new thinking and creative approaches. The best merchants in our industry are clearly not satisfied to grumble or leave their fate to chance. Instead they are undertaking an urgent search for approaches and strategies that will ensure survival and with patience, success. The customer counts and average ticket may be down, but top retailers realize that this situation is temporary. In managing core resources such as personnel and inventory it is critical to maintain the positive outward image of business as usual. If the shelves look half empty or there is no one to answer questions, the customer gets the message loud and clear, “Do your shopping somewhere else”.
MacPherson’s core advantage to retailers is our ability to ship small quantities from a huge vendor selection at warp speed. This allows for high customer satisfaction with a resulting low inventory investment through reduced minimum “presentation quantities” and quick stock recovery. In these times this strategy may seem like a “no brainer”, but it is actually smart in the long-term, too. We call it “buying for the best total value”. Look at it this way; the price you pay for goods is not the only cost associated with inventory buying. Ask Bruce Merrifield, the “guru of TPC,” or Total Procurement Cost. Bruce has identified 11 elements of buying that range from fill rates & buying costs to lost opportunities & carrying costs. While, to a lot of buyers, searching for the best deal usually means the lowest price, there are added financial factors that need to be weighed. Understanding all the procurement costs and deploying ways to reduce them can pay big dividends. The simplest example is the time it takes to delivery and fill rate. If it takes a month to order, deliver and receive, and only 75% of what is ordered arrives in the shipment, how many sales will be lost and how many consumers will leave the store discouraged? Even if the fill rates on the direct orders are higher than 75%, most retailers have to wait to get up to the minimums for free freight and that lag time adds to the potential for customer-frustrating out of stocks.
So, what’s the appeal of the large order purchasing concept?
Old thinking: When you’re small you buy from distributors because you can’t meet the manufacturers’ minimums. When you graduate to the “big leagues,” you buy everything you can for price because you need the margin to compete. When you’ve “arrived”, small and frequent orders are just for “fill-ins.”
New Paradigm: Art supply stores are full of slow moving items. “Large order” minimums for all but a handful of products will last months if not years on the shelf. Slow inventories choke growth and profits. Concentrate direct buying energy on the few SKUs that really move and use “just in time”, “turn & earn” methods to get rid of all excess items. When you reach this state of “Inventory Nirvana,” distributors like MacPherson’s are the only true partner you have!
The new paradigm has produced impressive results for art supply retailers because its primary focus is on having just enough inventory to last until the next order arrives rather than an arbitrary amount dictated by supplier minimums or buyers convenience. The problem of inventory management is particularly tricky for art supplies. MacPherson’s stocks 32,000 items. The fastest 1,500 items by dollar volume account for 49.6% of our sales. The next 4,500 add up to 30% of sales. Proof that the 80/20 law holds true… that is 80% of our sales come from 20% of the items. Take a look around your store. Our bet is the 80/20 rule works there too. The top items or “Triple A’s” are what your customers measure you by.
Consider this: The average art supply store turns its inventory 2.2 times per year or 5.5 months worth of the typical item on hand at any given moment. If your inventory is worth $300,000 at cost and you improve turns to 4 turns, the bankable savings is an incredible $135,000! Why not earn interest or pursue another market niche with plenty of “liquid” resources.
Leave nothing to chance: If you are like us, your business is your life and needs to be guarded and cared for with the best partnerships available. It’s just too important to leave to emotional or capricious decision making. Our fast fulfillment and high fill rates are the result of a rock solid commitment to keeping the industry‘s highest-tech distribution centers, the best purchasing staff and an uninterrupted flow of goods from the manufacturers. All of this requires MacPherson’s to have rock solid financial strength.
So the next time you are tempted to put a large order out to bid consider a few of Bruce Merrifield’s TPC factors. Is the lowest price all-important or do inventory turn and fill rate issues have a much greater impact on your bottom line? If you want help in evaluating these points, remember that MacPherson’s professional sales representatives are skilled in the process and full of positive ideas. Working with us can be a modern business partnership at its best!