Almost as soon as the final revised 2020 Q3/Q4 Merchandise Financial Plan is complete it will be time to start initiate merchandise financial retail planning for fiscal 2021. Again, before any preliminary metrics are assigned, an overall strategic assessment must occur.
Many Planning and Buying Teams are directly impacted from initial goals established by senior management. Whether the CEO or CFO determines the overall strategy, at some point a financial guideline for sales in both new and existing locations is determined.
These values may be directly related to a Corporate 3 to 5 year business strategy in retail planning. It is at this level the initial review must occur. Take an example of a mature retailer, focusing on low single digit annual increases (say 2.5%), where 45% of total sales are in the Front Six and 55% are in the Back Six. With February as the typical lowest sales month in Spring, then include most of March, along with April and May with close to zero sales, even allowing for a ramp up in June and July to 60% of expected values, the net results are 50% below plan. If we then allow for a return in the Back Size to 80% of prior volume (accounting for loss of deliveries, and physical distancing trends negatively impacting sales on some types of product), the annual sales will be down close to 33%.
For a retailer weighted 30% Back and 70% Front Six, assuming the same retail impacts, the annualized volume will be around -25%.
Assume the retailer is in the early years of their strategic plan, with planned volumes in the range of:
2018 2019 2020 2021 2022
745.0M 763.0M 782.2M 801.7M 821.7M
If the actual sales for 2020 are ‘optimistically’ in the range of 600 – 625M, a ‘reset’ will need to occur. There is no evidence that fiscal 2021 will immediately recover to replace what was initially planned, even for 2020. In fact, it may well be that fiscal 2022 is the first year that the initial plan for 2020 can be utilized as the benchmark.
Given the possible new reality, what are some of the key factors to use to ‘redefine’ the appropriate budget # for 2021? Here are several topics which will be critical to incorporate within fiscal 2021 planning process to help guide the go forward direction.
The brutal results for March to May will now work ‘on your side’ as incremental sales in the 2021 plan. Unless a drastic strategic change has occurred, use the historical ratio of March/April/May to the Front Six total to determine an overall result. For businesses where Easter is critical, Sunday April 4, 2021 is the date (compared to April 12 in 2020 and April 21 in 2019), meaning the sales flow compared to 2020 will focus more in late March.
‘Aged’ Inventory Sales
In the first article in our series, we discuss usage of aging codes to assess your current inventory liabilities. As you plan 2021, take the time to understand the blend of Front Six sales were driven off of prior year (or prior season) inventory. If your organization used 2020 to ‘clean up’, you may need to reassess the average unit retail (“AUR”) of your planned selling, given the lack of aged in 2021.
Based on your CRM / Market Basket analysis data, you will need to determine whether regular price and lesser promotional sales will offset those $ (obviously not units), generated selling aged, most likely at a much lower AUR.
Has customer interest changed? Are you finding that lower price point items are selling through more rapidly? Is it taking a higher POS MD% (or more Permanent markdowns) to effectively liquidate your higher price point products?
Is promotional pricing still driving the expected unit lift / sell throughs as in past years? Or, is there a need to even more aggressively promote (higher % off) to generate comparable sales units? If so, how negatively are the margin calculations impacted?
Another topic from the first article will also help you determine other areas to plan with upside. Now knowing the actual historical selling volumes (as well as in stock position), BAS can be reviewed to determine whether the Front Six results also have upside.
If Basics are increasing in your overall sales mix, are they impacting your Fashion sales? If it is decreasing, had the in stock / quality component changed or is it just that the demand for such items diminished?
SB/FB are just as critical – it is important to understand (by product category) if there have been specific timelines where SB items are strong sellers, versus initial ‘window dressing’. Just as important, utilizing the SB and FB data will allow Planners to understand the longevity / price point offers when liquidating SB into the Back Six, along with the impact (if any) that FB styles have during the Front Six.
Whether or not your company leverages CRM, are you seeing the average sale per customer decreasing? Is the decrease based on units or on price? If increasing, is the number of transactions per store (or per customer) remaining constant or lowering?
For retailers with varied selection of selling channels (retail, outlet, catalogue, online), have there been unexpected decreases within any channel? If no actual growth of selling locations was incorporated in the plan, it will be critical to understand if the decrease is geographically based (possible greater impact from the pandemic results) or if some other change has occurred within your customer based on their interest to shop for your product.
In all cases, we can safely assume this year’s data will not be a reliable benchmark for planning your 2021 business. It’s more important now than ever to plan by ensuring close collaboration with all your business partners. The pandemic can also be an opportunity to reboot your business in a whole new way. Creativity will count more now than ever before, not only in design, but in reinventing the business as a whole. If you leverage your team, you’ll find opportunities abound. Now is the time to re-group, diversify supply chain, find creative ways to leverage multiprong approach.