Inventory optimization

The trick with inventory optimization is that each category is treated uniquely. Some items may allow you an incredible number of turns. Parts and accessories lend themselves to this in particular. Most shops are placing one or two parts orders weekly, and this is where diligence pays off. Why carry a few month’s inventories of items you can turn weekly or bi-weekly? The answer is simple. The more turns allow you to hit freight allowance numbers more readily and keep more dollars in categories that naturally may not turn as many times. When we talk about turns, some items you want to have may turn less than goals, while others may turn 10-15 times. From a cash flow standpoint, “just in time” is always the goal. I know some may disagree with making that many turns because you will be receiving inventory constantly. Still, in the early goings of becoming inventoried correctly, it is safer this way, in my opinion. As you develop better controls on your inventory, you can more confidently increase ordered quantities, always staying within your “budget” of inventory dollars, of course.

Consideration should always be given when you begin to become more detailed with your inventory is that some vendors and salespeople may object at first to the use of data to make better decisions. Use data to disarm them instead of emotions. When you negotiate from the position that improving your metrics is the goal – it can enhance the relationship. If your vendor, when showing legitimate reasons based on data that you are trying to grow your business metrics, cannot fulfill your needs, you may need to look elsewhere. Salespeople have a job that, at times, can be at odds with your business’ health. Becoming more data-dependent is a fine line to walk, as you want to have partners that can trust you are doing what is best for the business, and the benefit to that for them should be obvious.

Inventory Buying

Inventory buying is a very personal process for many retailers. Certain brands, product categories, and even colors, etc., can play a big roll in what ends up on a shop’s sales floor. The constant use of the data to drive those decisions will also disarm the buyer from making costly mistakes. One critical thought to have when making decisions using data, combined with some experience in one’s own business, is that data is just another way of listening to what your customers want. It cannot be any more evident than the natural example of a product that sits until discounted while other products turn circles around the slow movers. A serious problem is when that information is not acted upon. The reality is that many shops continue to make the same mistakes year after year, while the data is telling them another story.

Inventory Purchasing

Inventory purchasing need not be a mystical process. Using the formula outlined in part one, applied across your categories to ensure that you have the correct amount carried in each category, then applying a little artful foresight when you feel a specific category needs attention. Perhaps a category needs to be bulked up if you aim for an increase in sales, or maybe a product shortage is looming. Conversely, maybe a category needs to be lightened up because it can be turned much more frequently. Data and knowledge of any personal bias in your buying habits can go a long way to becoming more profitable and loosening up cash flow. I am sure many reading this have stood on the sales floor and wished you could convert some slow-moving items to cash. While discounting is generally frowned upon, when an item is for whatever reason exhibiting signs that it may not sell quickly or at all without extra incentive, make that decision quickly and convert the item(s) to cash. You do not want to be operating a museum!

Running a Profitable Bike Shop

Running a profitable bike shop is not rocket science. However, it is challenging to do if you do not budget your inventory buys at the category level, by extracting the data, and trusting it. Interpreting your data accurately when having to apply hindsight to future buys, and also continually analyzing if the products you are putting on the floor, even if they are selling through are the best option from a profitability standpoint.

Next up, we will dive deeper into vendor selection and its effects on profitability.

Words By David DeKeyser

David DeKeyser and his wife Rebecca Cleveland owned and operated The Bike Hub in De Pere, Wisconsin, for nearly 18 years. In 2018, they sold the business and real estate to another retailer based in a nearby community. David now writes the Positive Spin series on Bicycle Retailer and Industry News and he writes articles for the NBDA’s blog, Outspokin’. David also provides business consulting through the NBDA’s P2 Consult Program.

The NBDA has been here since 1946, representing and empowering specialty bicycle dealers in the United States through education, communications, research, advocacy, member discount programs, and promotional opportunities. As shops are facing never-before-seen circumstances, these resources offer a lifeline. Together, we will weather this. We at the NBDA will not waver in our commitment to serving our members even during this challenging time—but we need your support.

Now is the time to become a member as we join together to make one another stronger. Whether you’re a retailer or an industry partner, your membership in the NBDA is one of the best investments you’ll make this year. 

Learn more about the benefits of being a member and join now.

The post Inventory – Part 2: How To Run A Profitable Bike Shop appeared first on National Bicycle Dealers Association.

So what are the top three ways Inertia can kill your business? It boils down to failing to act in many areas of your operation. The big three, in my opinion, are those below.

Occupancy Costs

Retailers who find themselves paying too much for their space are often unable to pull the trigger to move or perhaps to downsize their square footage. Probably one the hardest and most stress-inducing things to put your business through is moving. But if your bike shop is finding itself in a position that sales are not keeping up with the increases in rent or have never entirely aligned with the occupancy costs, it is probably time to consider the options. Math is fun, and you may want to play some games, looking at various possibilities of the rent reduction. Sometimes you can be in a better position even with a slight loss of gross revenues if your occupancy costs decrease enough. Another possible benefit to downsizing is the simple loss of space that can help control inventory expenses. Many retailers fill the area simply because they have it. A smaller store can bring the guardrails in a little closer. The bottom line is not getting caught in the inertia trap of being overbought on your occupancy/location.

Payroll Expenses

Payroll costs and employee retention are complicated issues. It is a tricky tightrope to walk as a staff is critical to success, but the day-to-day enjoyment you get from running your business. If I could go back and give myself advice, it would be that whenever I had doubts about the longevity or quality of an employee, I wish I had decided to part ways or seek resolution much sooner. One caveat here is to make sure that the troubled employee may have a straightforward need that you haven’t addressed, that could turn them around and be a win-win. Keeping folks around that seem to be always poisoning the pond with negativity. Regardless of how veiled, need to go. The upside is that by making sure that your key employees feel valued and able to carry the weight should a bad seed need to be let go, can raise everyone’s morale knowing they aren’t working with folks who aren’t taking their weight. Payroll is your most significant expense and is often the hardest to maintain. Treat your employees well, and don’t let those who aren’t a fit hang around too long. Also, do not get caught in the trap of believing that your situation is somehow too unique. This ubiquitous refrain I hear – that certain situations faced are unique enough to warrant higher than standard payrolls. Be very careful of thinking in that way.

Margins…margins…margins

The mere mention of margins seems to rub some folks the wrong way, and lengthy discussions may emerge about “margin dollars” and a whole host of other theories about profitability. The bottom line is that your gross margin is critical. Knowing you may be getting substantially higher/lower margins comparing vendors, categories, etc., gives you information to act upon as you work towards zeroing in on the products to push and reevaluate and potentially move away from in the long term. Inertia in this area may take on being wed to vendors who make it difficult to be as profitable as you like or need to be. Conversations with your vendors to achieve the profits you need to survive and thrive should always be occurring. Negotiate with data and intelligent reasoning. I have heard first-hand accounts of retailers being allowed to work in an individualistic way with critical suppliers to make the relationship equitable. If all else fails, explore your options. Your profitability is in your hands, and many retailers have successfully found ways to achieve the margins they desire. Avoid Inertia in challenging conventional thinking that margins naturally go down, because they can’t if you aim to be successful.

Words by David DeKeyser

David DeKeyser and his wife Rebecca Cleveland owned and operated The Bike Hub in De Pere, Wisconsin, for nearly 18 years. In 2018, they sold the business and real estate to another retailer based in a nearby community. David now writes the Positive Spin series on Bicycle Retailer and Industry News and he writes articles for the NBDA’s blog, Outspokin’. David also provides business consulting through the NBDA’s P2 Consult Program.

The NBDA has been here since 1946, representing and empowering specialty bicycle dealers in the United States through education, communications, research, advocacy, member discount programs, and promotional opportunities. As shops are facing never-before-seen circumstances, these resources offer a lifeline. Together, we will weather this. We at the NBDA will not waver in our commitment to serving our members even during this challenging time—but we need your support.

Now is the time to become a member as we join together to make one another stronger. Whether you’re a retailer or an industry partner, your membership in the NBDA is one of the best investments you’ll make this year. 

Learn more about the benefits of being a member and join now.

The post Top Three Ways Inertia will Kill Profitability appeared first on National Bicycle Dealers Association.

As a business owner, you need to always be on the winning side of expense fluctuations.

The concept is simple. Have an expense go up; you have to cover that expense. If you have gone with the flow for years and not adjusted service pricing, for example, even as the wages you are paying your service staff have risen, you are losing. Thinking the big dollar “profits” on that particular order you are ordering can outweigh the incredibly high freight costs coupled with the relatively low margin, you are losing. Product pricing may be creeping up on SKUs that have been in your POS for years, and you are still charging the same retail price = a loss. MSRP and MAP pricing has two keywords you should key in on your system. You were suggested and minimum.

If you follow the suggestions, you will get the minimum profits. Not only can you price items higher, in many cases, but you also have to maintain your benefits. Can you price everything higher? Of course not, but you may be surprised at how easy it is to mark items above MSRP/MAP pricing with very little to no pushback. I feel that service pricing and service parts are the most easily raised prices. It is incredible to view the enormous disparity in service pricing around the country or even in the same town.

Spend some time lurking around your peers’ websites and see for yourself. Can it be that simple? Of course, it is. Constant attention to your bottom line, margins and expenses will keep you moving in the right direction. For every retailer who says they cannot compete with the internet, another one proves them wrong. For every retailer who thinks they cannot command those higher service prices, someone will.

Your mindset has to change so that you have to understand the basics of your business and act on them on a day to day basis. Do you have a category that is stinking up your cash flow, yet you feel it is critical to your store’s image, ego, or has to be supported because that’s “who” your shop is? That by either eliminating or right-sizing that category will send the wrong impression to your employees or customers. This real issue that I have heard many retailers provide as the reasoning they continue to invest time, shop space, and cash flow into underperforming areas of their business (well, the ego part is usually avoided).

Here’s what you need to do: each time you have a price increase in freight, inventory, wages, or any other expenses in your business, you need to sit down and decide whether you want to make less money and necessarily pay for the increase out of your pocket, or do you maintain your margins and subsequent cash flow by finding an item or service that needs to increase to cover the increased cost. You can also revisit your expenses and see if you can reduce them in a particular area. By thinking you are working daily to stem the million little paper cuts one at a time, versus finding out your profits dipped at years end. Being proactive is the easiest way to stay on the ball.

Finally, if you have items or a vendor whose margins are not in keeping with your desires as they relate to profits, you have two choices. First, you can raise the prices to mostly stress test them to determine if your market will bear the (needed) increase in pricing. Second, you can search for products/vendors that may deliver the higher margins you need and still be desirable to your customers. Remember, you are ultimately captaining your ship, and it is up to you to avoid sinking that ship. I’d love to hear from you – if you have questions or comments regarding these ideas, email me at david@nbda.com.

Words by David DeKeyser

David DeKeyser and his wife Rebecca Cleveland owned and operated The Bike Hub in De Pere, Wisconsin, for nearly 18 years. In 2018, they sold the business and real estate to another retailer based in a nearby community. David now writes the Positive Spin series on Bicycle Retailer and Industry News and he writes articles for the NBDA’s blog, Outspokin’. David also provides business consulting through the NBDA’s P2 Consult Program.

The NBDA has been here since 1946, representing and empowering specialty bicycle dealers in the United States through education, communications, research, advocacy, member discount programs, and promotional opportunities. As shops are facing never-before-seen circumstances, these resources offer a lifeline. Together, we will weather this. We at the NBDA will not waver in our commitment to serving our members even during this challenging time—but we need your support.

Now is the time to become a member as we join together to make one another stronger. Whether you’re a retailer or an industry partner, your membership in the NBDA is one of the best investments you’ll make this year. 

Learn more about the benefits of being a member and join now.

The post Expense Creep – Victim Or Victorious? appeared first on National Bicycle Dealers Association.