138 | How to Write a business Plan
music store would be caught dead without the top ten CDs and DVDs in stock. Good retailers quickly mark down slow-moving items for a quick sale. They then use the cash from selling these dead items to buy new and popular ones. For example, there is nothing sadder than a small bookstore still trying to sell last year’s hardcover bestseller when the drugstore down the street already has the paperback version. A good retailer has a wide enough selection to appeal to customers. In a bookstore’s case, this might mean a strong backlist in several areas of local interest. Good inventory management also means deciding that some customers just aren’t worth catering to. For example, if you wear odd size clothes, you are very aware of this merchandising policy. I wear shirts with 37-inch sleeves because I’m six feet, four inches tall, and it has only been in the last 20 years that some department stores carry
this size. That’s because retailers used to think that 37-inch sleeve shirts never sold. Then the baby boom generation came of age, with many men needing larger sizes, and it became economical to serve these folks. Good retail managers accomplish all of these ends and also keep the total dollar investment in line with profit goals by carefully managing “inventory turnover”— how many times per year you completely replace the stock. For example, if your average cost of sales is 50% and your sales are $300,000 and your inventory is $40,000, you turn over your inventory 3.75 times per year ($300,000 x 0.50 divided by $40,000). As before, many retail managers strive for three to four turns per year. Some businesses, like gasoline stations, may turn over their inventory every week. Make sure your plans reflect your industry standard and good, common sense. ■