As small businesses, it is challenging to keep one’s head when the ‘black Friday’ push is on. Be vigilant, do not set yourself up for a loss leading busy month. It is very easy to discount stock on the shelf without consideration for the real cash invested. Use a systemic approach to affirm the real loss on long standing stocks and the per unit margins.
Big businesses have stock management software at their disposal to always see every line items margins. The current stock flushing technique used to engage in ‘black Friday’ is part of a broader strategy for large retailers. Even if the actual event becomes a loss leader, the brand can win, primarily because 50% of the stock on offer is ‘deadstock’. Data systems are critical, but the technology only adds value if the strategy is clear.
As a small retailer, give consideration to how you want to show up, are you able to afford the ‘black Friday’ push. Are you prepared for the post promotion cash injection required to fill your shelves again. If you don’t amend prices but regroup stock will it be able to provide your customers with a re-freshed experience instead of slashing prices. Are you positioned geographically to take advantage of ‘big business’ marketing without digging into your own pockets.
If you have decided to participate, evaluate your position, have you built up negotiated pricing in your supply chain so that you do not pay premiums on stock. This would require at least 12 months of advanced planning. Always keep in mind that stock management is cash management.
Be vigilant, and pedantic about your books, go line by line; on each item assess buying price, mark-up and the sales cycle.
The buying price is controlled by your supply chain relationship. You should always seek to purchase at favourable bulk prices for leading stocks.
Leading stocks are goods that do not stay on your shelf longer than 30days, these goods determine your cash conversion cycle. By constantly replenishing them, you build favourable relationships with suppliers or production houses.
You have two negotiation streams, negotiate a good credit level so that cash does not leave your bank account too quickly. This is the most favourable position because you are using a credit book of 60 to 90days to turn cash. In the long-run this model allows you to gradually scale your business without taking on too much debt.
The second option is to negotiate good pricing so that even if you are a cash buyer it is at a rate that provides you with better margins. Cash is still king, applying this model means you have to negotiate strongly for upfront bulk discounts.
It is very rare that a small business would be able to negotiate the best on both sides of these two variables. With the assumption that you have made the correct selection of goods to market, focus on getting one of these core elements to work for you.
