Any discussion of pricing or markup formula at most golf facilities is best avoided for two reasons.
1. There doesn’t seem to be any two pro shops that markup product quite the same.
2. There seems to be some sort of hallowed reverence at most shops regarding the markup formula that is employed – perhaps because of some noteworthy history as to its inception.
Retailers everywhere are experiencing shrinking sales and more price conscious customers. This being the case it is more important than ever to make the most of each sale without trying to make so much so as to lose the sale and so I felt it time to touch on the pariah.
The principles that I want to apply here will be in an effort to price goods as to what the “market will bear” (MWB) keeping in mind always that price is not all we are selling (we are selling service, 'the experience', etc.) and that promotions are probably a better first markdown than the typical twenty percent.
Here is a typical occurrence and some math and definitions. UPS drops off a delivery of one hundred shirts. An assistant enters the goods into inventory and prints price stickers. The shirts cost $38 each and there is a $3 logo charge = $41 per shirt. The markup formula at this hypothetical shop is keystone – 100% of the wholesale price. The shirt will retail for $82. The gross margin is the percentage of the sale resulting from the markup. In this case: $41 divided by $82 gives a gross margin of 50%.
The principle of “market will bear” (MWB) applied here is a simple round-up process that is a result of asking the question “Will the consumer who will pay $82 pay $85? Depending on the shop and the knit involved this could be taken up a notch to “Will the member who will pay $85 for this golf shirt pay $89?”
Applying this principle to our delivery of 100 shirts produces the following:
$82 minus $41 = $41
$41 multiplied by 100 shirts = $4100
$85 minus $41 = $44
$44 x 100 = $4400
$89 minus $41 = $48
$48 x 100 = $4800 or an increase of 4% gross margin and an improvement of 17% markup over the standard formula.
It takes 1219 unit sales at $82 to produce $100,000 in revenue: at $85 - 1176 units and at $89 – 1123 units respectively. The increase in profit per $100,000 in sales depending on the extent to which the round-up principle can be viably applied could be as much as $4000 on almost one hundred less sales.
This is not necessarily practical when vendors pre-ticket their goods with suggested retails and that is one of the reasons it is always a good idea to be on the lookout for new lines that are not so well known. It is also the reason that building your own brand with quality private label goods should be considered as part of your selection. The other obvious way to increase initial markup is obviously to make a portion of the shirt buy off-price.
The bottom line is similarly affected when markdowns are reduced. The typical first markdowns of 20% are being acknowledged by retail experts as not working in today’s climate, certainly not being anywhere near as meaningful as they were a couple of years ago. A promotion on the same group of goods is an alternative worthy of an example. Consider the following:
PURCHASE ANY TWO SHIRTS AND GET A PAIR OF SHORTS FREE
The aged shirts are merchandised separately from the rest of the selection. The shorts were purchased specifically for the promotion at $16 a pair. I like this particular promo for a couple of different reasons.
1. It is perfect for any period of time between Memorial Day and Labor Day, particularly effective for Father’s Day.
2. There are a lot of customers who have taken to buying their season’s shorts at outlets.
3. Nothing beats free.
Using the $89 Shirt - here is the math:
Promotion - Retail
Shirt 1 $89
Shirt2 $89
Total sale $178
Promotion – Cost of Goods
Shirt 1 $41
Shirt 2 $41
Short $16
Total cost $98
Margin on sale = $80
Gross Profit – 45%
Markup - 82%
20% OFF SALE
Again using the $89 shirt a 20% off sale yields the following:
Sale shirt -
$89 minus 20% = $71.20
Margin on sale – $30.20
Gross Profit - 42%
Markup – 74%
In this example we get rid of three times as many units per sale with the promotion, said another way it takes 1/3 as many sales to move the same number of units. This is also a great way to rejuvenate your bottoms business and the promotional short sold at $39 when the promotion is over is a nice margin generator also.
Assuming we could reduce the total markdown on our shirt business of $100,000 by 3% by staging promotions instead of running sales we would be adding approximately $3000 to the bottom line. Promotions are also more customer friendly in that the customer does not have to calculate the price and if marketed and displayed properly should certainly be more attractive, customer friendly and more fun.
The above examples may or may not be strategies that could be meaningful to your operation but whatever your pricing policy the overriding principles do not change. Creatively increasing your initial markup (IMU) or reducing your annual markdown (MD) by the smallest of percentage points can make a huge difference to your business’s success.
A good way to introduce my services to prospective clients is to let me spend a typical day. Since I work per-diem, this is an easy proposal. I can develop a buy plan in the morning, merchandise in the afternoon and have a staff service seminar early evening after the shop closes. Anyone interested in discussing such a day and getting to know me and what I do can call me at 443-309-3005 or contact me at craigrkirchner@verizon.net to discuss details.
There is a very enterprising Assistant Golf Professional by the name of Brain Doback who has put together an informative blog that addresses the many hats worn by his peer group. Brian has become a friend who shares the philosophy that you can't have too much information. Take a look at Pay it Forward Golf. The link is to the right in "Sites to Visit".
Wednesday, April 28, 2010
Saturday, April 17, 2010
A Harder Look at Open to Buy and Count and Fill
There is a misconception that seems to be running rampant in the golf industry that a ‘push-button’ open-to-buy plan is the be-all, end-all to insuring success at Pro Shop retail. While it would be nice if this were true it simply is not. Before buying the software or placing your financial future in the numbers this type of reporting provides, let’s tear the concept down a bit attempting to understand both its limitations and plusses.
THE OPEN TO BUY FORMULA:
Planned sales + Planned Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory = Open to Buy at Retail
Prudent inventory control is obviously critical to ensuring that there is adequate stock on hand to produce the amount of sales that hopefully can be generated. The above formula can be used as a guideline as to how to replenish that number of units and/or dollars but does not pretend to establish what those levels should be.
Being over-inventoried in total units or dollars or owning the wrong type of inventory will determine markdowns and limit cash flow but is only realized by comparing it to what is healthy and then buying or not according to the formula, or more to the point common sense.
Being under bought will create missed sales opportunities but can only be properly avoided if the Planned part of the above formula is based on solid principles and an analysis and understanding of the shop’s sale history, space and fixturing.
My point is that most shops would certainly be better run using an OTB formula and plan as a guideline as to the coming month’s inventory needs but only once the proper Opening Inventory Level (OIL) is determined, realized and adjusted according to peaks and valleys during the course of the season. The magic push-button formula is the simplest of math that is probably best calculated by hand and then adjusted according to tournament schedules, special orders, off-price opportunities, fast-selling items, mark up variations and count-and-fill categories. Also most pro shops think through they’re buying as a seasonal activity based on number of turns as opposed to a monthly decision based on what usually manifests itself as partial needs.
Another concept that is tossed around in the industry but rarely understood and properly utilized is that of count-and-fill. The phrase immediately brings to mind the maintenance of the proverbial solid shirt program but redefining and instituting its new meaning across all pertinent categories can lower inventories and insure against loss of sales more effectively than open-to-buy reports.
There are many important categories where par levels can be set conservatively and count and filled often so as to reduce needless inventory but have full size runs of adequate selection when needed. Gloves, balls, shoes, socks, peds, rainwear, basic shorts and of course solid shirts are just a few of these categories with solid shirts worthy of an updated look.
A typical solid shirt program five years ago was three shelves in a wall unit with 8-9 skus or colors of a Fairway and Greene lisle or perhaps a Polo pique folded in stacks of six shirts each with one medium, two large, two x-large and one xx-large. The par level included back up if the business demanded. Par levels are best determined using the two-week rule. Keep on hand all sizes per sku in the number of pieces per size that may be sold in a two week period. Most shirt companies that have sold you on the idea of using their in-stock capabilities will fill in between 7-10 working days, which makes two week’s worth of inventory a good working plan. Someone of course needs to take ownership of the program, understand its significance and call the partner vendor with a fill-in once a week.
Five years later a few things have changed. Solid shirts are still of major importance and now include performance or polyester shirts as a category which are best displayed hung on a four way or perhaps shoulder-out by color on a bar in a wall. There are also actually fewer vendors willing to make the financial commitment to in-stock inventories 0f basic product.
Many facilities are using the solid shirt category as the key ingredient in an effort to build their own brand with private labeling and add significant margin to these sales. Pima-Direct has developed an in-stock program of mercerized Supima cotton that includes basic feed stripes as well as solid shirts and has done away with any complicated rules about fill-ins. You can call in whatever you need, have it embroidered and shipped ASAP and be proud that your highest margin shirt in the shop is not being offered down the street since it is your label and it is made of the finest cotton on the planet.
Selling a rain-suit and immediately calling in an order for its replacement should be SOP. I go to clubs that own size-runs of 6 to 8 different gloves. I’ve never heard an argument for more than two that made any sense to me. Owning 40 pair of shorts at the end of June but being out of 36 and 38 is the same as being out of business – the open-to-buy report however may not provide for this fill-in.
Count-and-fill categories properly merchandised and maintaining all other areas of the shop as they need to be re-merchandised and reloaded is a function of open-to-buy that is not explained by the formula or its reports. All aspects of retail are relative to the shop, its space and personnel but I would not invest in OTB software unless my shop was grossing at least 1.5 million/year. I would however make every effort to understand the concept as the valuable guideline and tool that it is.
The principles involved in determining the Opening Inventory Level (OIL) mentioned above and the importance of creating par levels for the proper categories of goods so as to establish the correct planned inventories are developed in the “Merchandise Buy plan Guide”. The importance of basing these planned numbers on the principle of space and an understanding of a healthy turn is the reason I wrote this guide.
THE OPEN TO BUY FORMULA:
Planned sales + Planned Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory = Open to Buy at Retail
Prudent inventory control is obviously critical to ensuring that there is adequate stock on hand to produce the amount of sales that hopefully can be generated. The above formula can be used as a guideline as to how to replenish that number of units and/or dollars but does not pretend to establish what those levels should be.
Being over-inventoried in total units or dollars or owning the wrong type of inventory will determine markdowns and limit cash flow but is only realized by comparing it to what is healthy and then buying or not according to the formula, or more to the point common sense.
Being under bought will create missed sales opportunities but can only be properly avoided if the Planned part of the above formula is based on solid principles and an analysis and understanding of the shop’s sale history, space and fixturing.
My point is that most shops would certainly be better run using an OTB formula and plan as a guideline as to the coming month’s inventory needs but only once the proper Opening Inventory Level (OIL) is determined, realized and adjusted according to peaks and valleys during the course of the season. The magic push-button formula is the simplest of math that is probably best calculated by hand and then adjusted according to tournament schedules, special orders, off-price opportunities, fast-selling items, mark up variations and count-and-fill categories. Also most pro shops think through they’re buying as a seasonal activity based on number of turns as opposed to a monthly decision based on what usually manifests itself as partial needs.
Another concept that is tossed around in the industry but rarely understood and properly utilized is that of count-and-fill. The phrase immediately brings to mind the maintenance of the proverbial solid shirt program but redefining and instituting its new meaning across all pertinent categories can lower inventories and insure against loss of sales more effectively than open-to-buy reports.
There are many important categories where par levels can be set conservatively and count and filled often so as to reduce needless inventory but have full size runs of adequate selection when needed. Gloves, balls, shoes, socks, peds, rainwear, basic shorts and of course solid shirts are just a few of these categories with solid shirts worthy of an updated look.
A typical solid shirt program five years ago was three shelves in a wall unit with 8-9 skus or colors of a Fairway and Greene lisle or perhaps a Polo pique folded in stacks of six shirts each with one medium, two large, two x-large and one xx-large. The par level included back up if the business demanded. Par levels are best determined using the two-week rule. Keep on hand all sizes per sku in the number of pieces per size that may be sold in a two week period. Most shirt companies that have sold you on the idea of using their in-stock capabilities will fill in between 7-10 working days, which makes two week’s worth of inventory a good working plan. Someone of course needs to take ownership of the program, understand its significance and call the partner vendor with a fill-in once a week.
Five years later a few things have changed. Solid shirts are still of major importance and now include performance or polyester shirts as a category which are best displayed hung on a four way or perhaps shoulder-out by color on a bar in a wall. There are also actually fewer vendors willing to make the financial commitment to in-stock inventories 0f basic product.
Many facilities are using the solid shirt category as the key ingredient in an effort to build their own brand with private labeling and add significant margin to these sales. Pima-Direct has developed an in-stock program of mercerized Supima cotton that includes basic feed stripes as well as solid shirts and has done away with any complicated rules about fill-ins. You can call in whatever you need, have it embroidered and shipped ASAP and be proud that your highest margin shirt in the shop is not being offered down the street since it is your label and it is made of the finest cotton on the planet.
Selling a rain-suit and immediately calling in an order for its replacement should be SOP. I go to clubs that own size-runs of 6 to 8 different gloves. I’ve never heard an argument for more than two that made any sense to me. Owning 40 pair of shorts at the end of June but being out of 36 and 38 is the same as being out of business – the open-to-buy report however may not provide for this fill-in.
Count-and-fill categories properly merchandised and maintaining all other areas of the shop as they need to be re-merchandised and reloaded is a function of open-to-buy that is not explained by the formula or its reports. All aspects of retail are relative to the shop, its space and personnel but I would not invest in OTB software unless my shop was grossing at least 1.5 million/year. I would however make every effort to understand the concept as the valuable guideline and tool that it is.
The principles involved in determining the Opening Inventory Level (OIL) mentioned above and the importance of creating par levels for the proper categories of goods so as to establish the correct planned inventories are developed in the “Merchandise Buy plan Guide”. The importance of basing these planned numbers on the principle of space and an understanding of a healthy turn is the reason I wrote this guide.
Wednesday, April 7, 2010
The Wow Factor
Of all the concepts and buzz-words developed in my manual “The Winning Golf Culture” the one that has gotten the most feedback is the wow factor. I have had dozens of pros tell me that their staffs are buying into the idea that every day, every round and every customer are opportunities to create exceptional experiences and memorable moments that will have people talking about their facility and staff.
There is no question that the best prospect for a new member is a wowed guest and that customer loyalty is the by-product of proactive customer service. This is the chapter in the manual that directly speaks to this aspect of a winning culture but it is also one of the key underlying principles that runs through the entire manual.
Simply defined, the Wow factor is the process of creating positive impressions consistently above the normal customer expectations. Wow service leaves the customer with such a favorable impression of the experience that they grab the first person they see and look them in the eyes and shout – “You need to play there, it is really special.”
I was in the Philadelphia airport recently and I was wearing a belt with a repeating Kinloch Golf Club logo. A man I had never seen before approached me, half-gestured at the belt and asked me if I was a member. I had to reacquaint myself a bit with my outfit and replied that I was not but had the pleasure of working with the staff particularly in regards to the shop. The fellow introduced himself and began his “Then you will appreciate what I am about to tell you” story.
"I was in Richmond recently on business I played there with a member and can’t wait to go back."
"It’s a great course isn’t it", I said.
"Yes, it is – but the whole experience was incredible. I drove to the course and when we first went in the shop the head pro introduced himself, shook our hands and asked me if I wanted my car detailed while we played. The staff at the front door had already valeted the car and had the keys, all I had to do was say yes and I did. When we finished for the day my car was waiting at the front door, bags loaded, staff thanking us for being there. It was a hot July day and two things that struck me when we got in the car was that the car hadn’t been this clean since I bought it and there were cold bottles of water in the console with a ‘Thank you for spending your day with us’ note. I drove the car about 50 feet in the driveway, re-parked and went into to the Pro Shop to thank someone for the thoughtfulness. I ended up buying $500 worth of shirts and shorts and the friends that I had played with did the same. The shop was great also by the way."
The point of this story is that you never know what will be the Wow Factor that will have people talking about your facility in airports, with people they don’t know. The devil is most definitely in the details and it is more often than not the small thing that ends up counting the most. You want the underlying philosophy of your culture to be that any visit that does not provide such a story and the desire to tell it to someone is a missed opportunity.
The Wow factor and the subsequent word of mouth are worth more than can be measured and other than well trained staff often doesn’t cost anything. In the case of the Philadelphia gentleman – it cost a bottle of water.
There are many aspects of impressing people that are unique to Golf and Pro Shop retail.
There is the layout, maintenance and design of the golf course. I’ve heard people come home from a weekend at the Greenbrier and talk for day’s about the ‘best ham sandwich I ever ate” or the “best tomato soup on the planet.” Of course one of the most obvious pluses or Wows as regards Pro shop sales is the notoriety of the facility’s logo and the inherent history that it represents. It would be nice if every facility had a reputation for any or all of the above or had a U.S. Open logo to retail but the ultimate success of any facility including Pinehurst or Pebble Beach in today’s competitive market place has to do with the hard work and planning it takes to create a culture geared to providing Wow experiences. No one talks about how wonderful it was to pay for all the goods and gifts they bought at Merion or Hagan Oaks when they were there as a guest but they may tell you how willing and informed the staff was that helped them.
In summary, we have a Leader who is not satisfied with basics and is committed to the Wow Factor philosophy of exceptional service throughout the customer’s experience at his facility. Executing this process successfully involves the following actions:
• Set the bar high during the hiring process.
• Continue to define the Wow factor both by example and in one-on-ones with staff members.
• Provide a forum for everyone involved in the process to introduce ideas for discussion of ways to enhance the customer’s experience.
• Discuss negative as well as positive incidents at these meetings, realizing that any and all customer problems are an opportunity to make a friend.
• Identify barriers that may exist and could potentially interfere with your customer service commitment.
• Challenge your staff to attempt to personalize every customer interaction with their own particular style.
• Communicate that it is not only key staff that understands this commitment.
• Involve local reps or vendor sales managers in educational staff meetings –having them provide product knowledge and their input and stories on salesmanship and service. They will become some of your best word of mouth.
Other specific actions:
Challenge yourself and your key associates to pick a member/regular per day who you will totally Wow with a personalized service.
Make a point of directing the Wow techniques that you and your staff have developed toward those members/customers who do not typically patronize the shop.
Communicate to all employees regularly that the Wow Factor will make their future and careers more meaningful both professionally and personally.
Set as a goal of the instituting of the Wow factor to turn the 80/20 rule into a 60/40 realization. To the extent that you are successful your retail should grow accordingly.
The Table of Contents of the 40 page manual shows best the other topics addressed:
Table of Contents
The Culture
The Leader
The WOW Factor
The Intimacy Factor
Salesmanship is Service
Pre-service
Shop Salesmanship
Follow Up
Hire to the Culture
The Result
The opportunity for the golf industry and more specifically golf retail to separate itself from the box store mentality of no-service has never been more poignant. Fine men’s clothing stores are fast going the way of full-service gas stations but a goodly number of their customers are members of the local club. Many of the shops at these clubs are a revamped product selection and tweaked salesmanship level away from being able to replace this part of their member’s lives and this is the reason I wrote “The Winning Golf Culture”.
I am in the market for 2-3 new clients and believe that the best way to introduce someone to my services is to let me spend a typical day. Since I work per-diem, this is an easy proposal. I can develope a buy plan in the morning, merchandise in the afternoon and have a staff service seminar early evening after the shop closes. Anyone interested in getting to know me and what I do can call me at 443-309-3005 or contact me at craigrkirchner@verizon.net and we can discuss details.
There is no question that the best prospect for a new member is a wowed guest and that customer loyalty is the by-product of proactive customer service. This is the chapter in the manual that directly speaks to this aspect of a winning culture but it is also one of the key underlying principles that runs through the entire manual.
The Wow Factor
There are no traffic jams along the extra mile.
-Roger Staubach
-Roger Staubach
Simply defined, the Wow factor is the process of creating positive impressions consistently above the normal customer expectations. Wow service leaves the customer with such a favorable impression of the experience that they grab the first person they see and look them in the eyes and shout – “You need to play there, it is really special.”
I was in the Philadelphia airport recently and I was wearing a belt with a repeating Kinloch Golf Club logo. A man I had never seen before approached me, half-gestured at the belt and asked me if I was a member. I had to reacquaint myself a bit with my outfit and replied that I was not but had the pleasure of working with the staff particularly in regards to the shop. The fellow introduced himself and began his “Then you will appreciate what I am about to tell you” story.
"I was in Richmond recently on business I played there with a member and can’t wait to go back."
"It’s a great course isn’t it", I said.
"Yes, it is – but the whole experience was incredible. I drove to the course and when we first went in the shop the head pro introduced himself, shook our hands and asked me if I wanted my car detailed while we played. The staff at the front door had already valeted the car and had the keys, all I had to do was say yes and I did. When we finished for the day my car was waiting at the front door, bags loaded, staff thanking us for being there. It was a hot July day and two things that struck me when we got in the car was that the car hadn’t been this clean since I bought it and there were cold bottles of water in the console with a ‘Thank you for spending your day with us’ note. I drove the car about 50 feet in the driveway, re-parked and went into to the Pro Shop to thank someone for the thoughtfulness. I ended up buying $500 worth of shirts and shorts and the friends that I had played with did the same. The shop was great also by the way."
The point of this story is that you never know what will be the Wow Factor that will have people talking about your facility in airports, with people they don’t know. The devil is most definitely in the details and it is more often than not the small thing that ends up counting the most. You want the underlying philosophy of your culture to be that any visit that does not provide such a story and the desire to tell it to someone is a missed opportunity.
The Wow factor and the subsequent word of mouth are worth more than can be measured and other than well trained staff often doesn’t cost anything. In the case of the Philadelphia gentleman – it cost a bottle of water.
There are many aspects of impressing people that are unique to Golf and Pro Shop retail.
There is the layout, maintenance and design of the golf course. I’ve heard people come home from a weekend at the Greenbrier and talk for day’s about the ‘best ham sandwich I ever ate” or the “best tomato soup on the planet.” Of course one of the most obvious pluses or Wows as regards Pro shop sales is the notoriety of the facility’s logo and the inherent history that it represents. It would be nice if every facility had a reputation for any or all of the above or had a U.S. Open logo to retail but the ultimate success of any facility including Pinehurst or Pebble Beach in today’s competitive market place has to do with the hard work and planning it takes to create a culture geared to providing Wow experiences. No one talks about how wonderful it was to pay for all the goods and gifts they bought at Merion or Hagan Oaks when they were there as a guest but they may tell you how willing and informed the staff was that helped them.
In summary, we have a Leader who is not satisfied with basics and is committed to the Wow Factor philosophy of exceptional service throughout the customer’s experience at his facility. Executing this process successfully involves the following actions:
• Set the bar high during the hiring process.
• Continue to define the Wow factor both by example and in one-on-ones with staff members.
• Provide a forum for everyone involved in the process to introduce ideas for discussion of ways to enhance the customer’s experience.
• Discuss negative as well as positive incidents at these meetings, realizing that any and all customer problems are an opportunity to make a friend.
• Identify barriers that may exist and could potentially interfere with your customer service commitment.
• Challenge your staff to attempt to personalize every customer interaction with their own particular style.
• Communicate that it is not only key staff that understands this commitment.
• Involve local reps or vendor sales managers in educational staff meetings –having them provide product knowledge and their input and stories on salesmanship and service. They will become some of your best word of mouth.
Other specific actions:
Challenge yourself and your key associates to pick a member/regular per day who you will totally Wow with a personalized service.
Make a point of directing the Wow techniques that you and your staff have developed toward those members/customers who do not typically patronize the shop.
Communicate to all employees regularly that the Wow Factor will make their future and careers more meaningful both professionally and personally.
Set as a goal of the instituting of the Wow factor to turn the 80/20 rule into a 60/40 realization. To the extent that you are successful your retail should grow accordingly.
The Table of Contents of the 40 page manual shows best the other topics addressed:
Table of Contents
The Culture
The Leader
The WOW Factor
The Intimacy Factor
Salesmanship is Service
Pre-service
Shop Salesmanship
Follow Up
Hire to the Culture
The Result
The opportunity for the golf industry and more specifically golf retail to separate itself from the box store mentality of no-service has never been more poignant. Fine men’s clothing stores are fast going the way of full-service gas stations but a goodly number of their customers are members of the local club. Many of the shops at these clubs are a revamped product selection and tweaked salesmanship level away from being able to replace this part of their member’s lives and this is the reason I wrote “The Winning Golf Culture”.
I am in the market for 2-3 new clients and believe that the best way to introduce someone to my services is to let me spend a typical day. Since I work per-diem, this is an easy proposal. I can develope a buy plan in the morning, merchandise in the afternoon and have a staff service seminar early evening after the shop closes. Anyone interested in getting to know me and what I do can call me at 443-309-3005 or contact me at craigrkirchner@verizon.net and we can discuss details.
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