Retail Buying Strategies That Will Put You Out of Business
Learn How to be a Retail Buyer and Manage One
I've been in the retail industry for 30 years. That's collegiate retail to be precise. In that time, I've seen several buyers crash and burn due to basic errors. Their failings jeopardized our store's success and existence. These mistakes can destroy a smaller business. At a larger store, such mistakes can end a career.
This article is for those people who are looking to be a retail buyer. It's also for managers who want to become more familiar with some of the red flags that lead to failure. Managers who want to develop plans for hiring competent retail buyers will find it useful too. Frequently, half the battle in running a solid business is in hiring the right person to do the buying.
Often, in retail, managers hire people for their ability to recognize good products. Sometimes they hire them because of their fashion sense or some other subjective thing. For instance, if somebody is good at recognizing appealing clothing, managers think they have potential. Unfortunately, this is a bad reason to hire somebody. Fashion sense is one thing. However, retail buying positions require a basic understanding of mathematical concepts. These would be concepts like inventory turn and GMROI (gross margin return on investment).
Can you teach these things? Sure you can. However, I've found that managers often assume people in retail buying already have the skills. When they discover they don't, it's often too late.
So here's a brief glimpse into what I've learned the past twenty-four years about what makes a bad retail buyer.
A Great Interview Question
One time I hired a buyer and 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.
That said, it might be wise to eliminate "b" as an answer all together to avoid confusion.
Retail Buying Mistake Summary
Buying Too Many of an Item for an Extra Discount
Buying Items as a Favor to Somebody
Allowing Judgment to Be Affected by Relationship with a Sales Representative
Lack of Self-Control
Buying for Extra Discount
The biggest weakness for bad retail buyers is making buying more to achieve additional discounting.
In almost every case, this wasn't done because the buyer was convinced they could sell more of that item. They did it because they simply didn't understand basic mathematical concepts. For instance, 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.
Bad sales representatives aren't familiar with basic mathematical concepts. Or, they're willfully negligent. They don't care what's in your store's best interest. Obviously, a good buyer should have be aware that buying 10,000 napkins makes no sense. However, a good sales representative should have told the buyer this as well. The buyer made two crucial errors. First, he bought too much. Second, he trusted his sales rep to provide objective information.
Most retail industries have standards for how many times an item should turn. That's 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. They increase cash flow. They reduce risk. Any good buyer knows this.
Doing Favors for People
Retail buyers need to be free from undue influence in order to do their job well. I have seen many mistakes made when a buying decision happened as a favor to somebody.
As a rule, if any sales person asks you to buy something as a favor to them, say no. Then report them to your supervisor. Unless you have a 100% guarantee and full returns in writing along with the approval of a supervisor, say no. Even then, I still wouldn't do it. A trustworthy sales rep will never put you in this position.
I know of situations where university administrators push their bookstore to make unwise purchases. Often, this is due to political influence. Sometimes a donor is selling something they made. Other times, a business acquaintance asks for a favor. Refuse every one of these requests. If it's not good for the business, just say no. No special request is worth the cost of your professional honor. Usually, it's just bad business.
What Buying Error is the Most Egregious?
Sales Representatives Cannot Be Your Friends
Any retail buyer who has a personal relationship with a sales representative outside of work should be reprimanded. If you're a retail buyer, a sales representative, no matter how nice, is not your friend. It's too easy to cross ethical boundaries. You can have a friendly professional relationship with a sales representative. You can be colleagues and friends. However, having a personal relationship is crossing a line because it gives the sales representative undue influence. It affects the buyer's judgment.
I knew a retail buyer who had a very close friendship with a sales representative for a major clothing line. The relationship eventually resulted in his dismissal. He took gifts. He made purchases he wouldn't otherwise make. The rep paid for things in order to generate more sales and more commission. There's simply no excuse for this. If you don't have clear, ethical guidelines for your buyers, write them now.
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.
And I should make a personal comment about this point. I have known many sales reps during my career. I would even call some of them friends. They have taken me to many dinners. Depending on where your ethical boundaries lie, you might even call that unethical. All I would say is that I never spent one dollar more than I would regardless of the relationship. And those sales reps who I consider friends? They never asked me to.
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 and didn't learn. They couldn't admit making a mistake. What they wanted to do was go about their business of buying without management interference. It was their way or the highway.
Beware any employee who isn't open to new ideas. Beware anyone who isn't willing to learn and improve. A good employee always admits that they have more to learn. A good employee welcomes ideas. They want to 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. That person will tell you that they've already know the answer. That buyer rarely considers new ideas.
In my career, the bad retail buyers protected some kind of secret. Things weren't anyone else's business. They closed themselves off to new ideas. When faced with new concepts, they came up with reasons they wouldn't work.
Remember, when people are cheating or doing something wrong, they're usually blaming others for something. Failure is somebody else's fault.
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, he should be able to do most types of math in his head. You should get the impression from her that she is 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.
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. 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.
There are other qualities in a good retail buyer. It's just that 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.
Whether you're the manager or the buyer, avoiding these mistakes is a huge step toward success.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2014 crankalicious