The owner, with a fresh MBA, had recently acquired the hardware store in an industrial park using a government loan. Store performance had been declining for years. One of his well-remembered lessons was to improve cash flow. So, the new owner decided to reduce inventory as a means of increasing inventory turns and improving cash flow. But this resulted in less inventory to sell, and store traffic declined even faster than before as more hooks on the display shelves stood empty.
In order to track cash flow, a 13-week cash flow forecast was created. Using existing financial information and current overhead costs, a full picture was created about the company’s cash burn.
To fully understand the company’s successful sales, product sales were evaluated using historical data. Items were ranked by sales volume, gross margin percent, sales per square foot, inventory turns, and adjacency sales impact. That information was used to determine which products should be kept and which should be eliminated. A physical inventory was taken of all the items in the store and warehouse. A plan was established to use clearance to quickly reduce the stock of any items that were being eliminated, saving valuable floor and warehouse space for items that would sell.
A plan-o-gram was designed for the physical layout of the store, making sure that different physical areas of the store are set aside for bulk products, racked products, impulse and seasonal products, and a service area location. These changes reset the customer flow through the store to lead customers to either quick buys, or seasonal and impulse items. Inventory was purchased to return the store to proper stocking levels for existing and new products
A new marketing program announced the store’s grand re-opening. The addition of the service desk provided factory repair services and boosted revenue by 12%. With stale inventory gone, and new promotions running, store retail volume immediately jumped 38% and continued to rise through the end of the first year, reaching a 72% increase year over year. Understand your customer and revise your business practices to meet their needs. Convenience and customer service are sometimes more important than competitive pricing. But even with prices adjusted to be more competitive with online retailers, the immediate availability of stock kept bringing customers into the store, solving the cash flow problem and stabilizing the store’s future.
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