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Business Strategies in Retail Buying That Will Put You Out of Business

Updated on April 29, 2016

I've been in the retail industry for 24 years, collegiate retail to be precise, and watched several general merchandise buyers crash and burn due to their various shortcomings. Their failings jeopardized our store's success and very existence and such mistakes can devastate a small business and lead to certain job loss at a larger one.

This article is for those people who are looking for a career as a buyer in the retail industry or for managers who want to become more familiar with some of the red flags that lead to departmental and store failure. It's also for managers who want to develop plans for hiring competent retail buyers because half the battle in running an effective retail business is in hiring the right person to do the buying.

Often, in the retail world, people are hired for their ability to recognize a good product or because of their fashion sense or some other subjective criteria. For instance, if somebody is good at recognizing fashionable clothing, they are often characterized as having potential as a buyer. Unfortunately, this is a bad reason to hire somebody into a role that requires a certain basic understanding of mathematical concepts like inventory turn and GMROI (gross margin return on investment).

So here's a brief glimpse into what I've learned the past twenty-four years about what makes a bad retail buyer.

How much stuff is too much? (CC-BY 3.0)
How much stuff is too much? (CC-BY 3.0)

A great interview question

I helped hire our last retail buyer and I had a single question on our interview exam that narrowed down the field of candidates from many to one because only one candidate answered the question satisfactorily. The sad thing about the answer to this question is that our store has had several buyers who went most of their career without knowing the answer or understanding it. More sadly, it's not that hard of a question. Here it is:

You sell about 1,000 logo'd napkin packages (each package contains 10 napkins) at $5.00 each year for your town's favorite sports team. A rep comes to you with an "amazing" deal. Instead of the 50% discount you normally get on 1,000 napkins, this rep has been authorized to sell you 10,000 napkins at a 60% discount and save you an extra $5,000 . She gives you a variety of options. Which one do you take?

a. Buy 500 napkins at a 49% discount.

b. Buy 1000 napkins at a 50% discount.

c. Buy 5000 napkins at a 55% discount.

d. Buy 10000 napkins at a 60% discount.

What's the right answer? It's certain that both "c" and "d" are wrong and any potential applicant who tried to justify why it was right would never get an interview with me. I would know that anybody who answered either "c" or "d" lacked the fundamental knowledge of retail buying to be effective. In my opinion, anybody with math and reasoning skills that poor is not worth hiring.

Either "a" or "b" is an acceptable answer with "a" being the preferable answer for GMROI. While I could show how "a" is the correct answer with math, I will resist. Usually, it's always better to increase turn unless it's a drag on one's receiving department. In this case, by buying 1000 napkin packages, the buyer is accepting a turn of 1. Somebody could certainly justify that if warehouse space was plentiful and the napkins weren't going to go out of style. However, I'd certainly like to see a potential applicant answer "a" and explain why.

Barnes and Noble Book Store. Classically overinventoried. Large bookstores tend to have low turns and those big stacks of books aren't helping. (CC-BY 3.0)
Barnes and Noble Book Store. Classically overinventoried. Large bookstores tend to have low turns and those big stacks of books aren't helping. (CC-BY 3.0)

Retail Buying Mistake Summary

  1. Buying Too Many of an Item for an Extra Discount
  2. Buying Items as a Favor to Somebody
  3. Allowing Judgment to Be Affected by Relationship with a Sales Representative
  4. Extreme Conceit
  5. Mathematics Illiteracy
  6. Lack of Self-Control

Buying for extra discount

In my time watching retail buyers fail, this has been their biggest weakness: buying too much of any item because they got an extra discount for increasing quantity. In almost every case, this wasn't done because the buyer was convinced they could sell more of that item, but because they simply didn't understand basic mathematical concepts, like if I sell 1000 of something per year, it's going to take me 10 years to sell 10,000. It's hard to believe, but it's true.

Most sales representatives also aren't familiar with basic mathematical concepts and, if they are, they aren't interested in whether or not buying more is in a store's best interest. Obviously, a good buyer should have been aware that buying 10,000 napkins made no sense, but a good sales representative should have told the buyer this as well. Not only did the buyer make the mistake of buying too much, but also in trusting the sales representative to give them good information.

Most retail industries have standards for how many times an item should turn (the number of times an item sells in a year). Buying enough to lower turns below the standard is generally not good practice. So if you selling 1,000 napkins packages per year and your boss wants you to average 5 turns, you'd only buy 200 at a time. Obviously, there are many other things that factor into buying considerations, but in a very general way, turns increase profit. Any good buyer knows this.

Doing favors for people

Retail buyers need to be as free from undue influence as possible in order to do their job well. I have seen many mistakes made when a buying decision was made as a favor to somebody.

If somebody, anybody, ever asks you or somebody who works for you to buy something as a favor to them, say no. Unless you have a 100% guarantee and full returnability in writing along with the approval of a supervisor, just say no.

In our store, somebody very high up requested we buy some paintings and sell them in our store even though we didn't sell paintings. This person was an influential political person who could have potentially caused problems for us. Well, we paid a lot of money for these paintings and they were eventually written off. Although we could afford it at the time, it set a terrible precedent and could have resulted in a scandal. It crossed an ethical line and should have been avoided. As a buyer, such decisions should be avoided. Have a moral and ethical code and stick to it.

Buy too much and this is where the merchandise goes. (CC-BY-2.0)
Buy too much and this is where the merchandise goes. (CC-BY-2.0)

What buying error is the most egregious?

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Sales representatives are not your friends

Any retail buyer who has a personal relationship with a sales representative outside of work should be reprimanded at the very least. If you're a retail buyer, a sales representative, no matter how nice, is not your friend and should never be your friend. You can have a friendly professional relationship with a sales representative, but having a personal relationship is crossing a line because it gives the sales representative undue influence and it affects the buyer's judgment.

I knew a retail buyer who had a very close friendship with a sales representative who represented a major clothing line. Although the clothing line was already a staple of the store, it never dawned on anyone that the relationship could be changing the nature of the buying this employee was doing. In fact, it turned out to be doing just that. This sales representative actually paid for things for the employee, including a vacation.

Eventually it was discovered that the employee was doing other things that were crossing ethical boundaries and the employee was fired.

I think it's fair to say that if an employee breaches one obvious boundary, he or she is probably breaching others. Having a close friendship with a sales representative is one such boundary.

Beware the know-it-all

I've met several retail buyers who claimed to know it all. In other words, when you approached them with a new idea they already knew whether it was going to work or not. They were closed-minded. They weren't learners. What they wanted to do was go about their business of buying without interference from management and they wanted to do things their way.

Beware any employee who isn't open to new ideas and isn't willing to learn and improve. A good employee always admits that they have more to learn and can get better. A bad employee, and one that is sure to make a bad retail buyer, is one that shuts down a conversation before it even begins, tells you that they've already investigated something, and is just generally closed to new ideas.

In most cases, the bad retail buyers I've met were always protective of anybody knowing how they did anything and redirected conversations involving new ideas and new ways to do something with reasons why it wouldn't work.

Fail to control inventory and this is where your business goes. (CC-BY-3.0)
Fail to control inventory and this is where your business goes. (CC-BY-3.0)

Can't add 2 + 2

Mathematical illiteracy is a huge problem in our country. It's a particularly bad quality in a retail buyer. Whether you are hiring or evaluating a retail buyer, they should be able to do most types of math in their head. You should get the impression from them that they are very good with numbers.

The best quality a retail buyer can have is not that they're good at shopping. I have met many a retail buyer whose main interest in the job was simply buying. They liked to shop and spend money.

The best quality a retail buyer can have is that they're good with numbers. Period. If they're not, then they're going to make a lot of mistakes.

No self-control

In retail, you've got to be able to say no to sales representatives, upper management, and yourself. Especially yourself.

A retail buyer who can't say no is somebody who's going to buy too much inventory and too much inventory is the death of any retail business. Every product is not a good product. Every line is not a good line. Sure, somebody will always buy something you decide to bring in, but whether customers buy one or a hundred is key in making the decision. Just because you think something is cool is not a reason to buy it. Maybe it is personally, but not professionally. A good buyer always has the best interest of their store in mind, not themselves.

A good buyer needs self-control. They need self-control both personally and professionally. If they don't have this quality, they're likely to fail.

Summary

There are other qualities in a good retail buyer, but these are the ones that have stuck out to me over the years that characterize particularly bad retail buyers. I'm convinced that people in retail buying who do the opposite of these bad buyers will advance and their stores will prosper.

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