For New Buyers #1

A furniture merchandiser's job isn't all glamour. He/she is expected to be a prognosticator of saleable merchandise, a fashion guru, and a predictor of trends. The merchant must be a forecaster of exactly how many per month of an item will be sold (sometimes seeing into the future 60 or 90 days). If too many are bought for stock, the buyer may be over-inventoried and the boss might get angry. If too few are bought, the retailer runs out of the item, sales are lost and the sales associates and the sales manager will be angry. He/she juggles the open-to-buy like an acrobat and prays the sales are there to support the PO's that have been entered a month or two prior. Pricing must be high enough to be profitable and low enough to sell...another juggling act. In the next few weeks I will be posting some concepts that I have come to understand over the past 35 years. I hope they provide some food for thought for those new to furniture merchandising. This is the first...the 80/20 rule.

The 80/20 rule
I'm sure most new buyers have heard of the 80/20 rule of merchandising. Simply stated, it implies that 80% of the company's sales will come from 20% of its merchandise. Now, it may not be exactly 80%, it may be 70%, 75%, or 77.3212%; the point is that most sales come from a smaller percentage of the offered products. This is not just an interesting point to be considered. It has three extremely important, substantive lessons for new merchants.

First, reordering merchandise at best is very tricky for companies that carry an inventory of products they show on their selling floor. It would be wise to identify the 20 or 25% of their merchandise that accounts for the vast majority of the store's sales and NEVER run out. Keep in mind that even if the stocks of an item become slightly higher than the sales per month statistic warrants, sales will adjust the back stock of the item quickly as long as the reorder buyer is on top of it and orders no more until the adjustment has been made. Running out of an item that sells at the rate of 2 per month may be OK. Running out of something that sells at the rate of 30 a month should never happen.

Secondly, it is critical to recognize that the 20% of sales coming from the other 80% of merchandise is critical to the total store's volume. Why? Because, it represents the store's SELECTION. The customer doesn't know about the 80/20 rule nor does she know that many other customers besides herself have purchased the item. In her mind, she's the only one. Consider this: Suppose one walks into a clothing store or department store to buy a new suit or dress. On the rack is a great looking garment. It is, however, the only one they have to sell in this person's size...the only one. It is a solid bet that the customer walks out without buying. Had there been more to choose from, the customer would have probably purchased this same item without hesitation. With no selection there will probably be no purchase. This is the function of the other 80% of merchandise accounting for 20% of sales.

Please, understand that I am obviously not suggesting that a merchant select products that won't sell. I am proposing that every item will never sell at the same rate as every other item and that is OK. An item selling at a rate of 5 per month may actually be performing well while an item selling at the rate of 20 per month is not. Like so much in life, it is all about balance.

Finally, for retailers that do not presently inventory merchandise they may wish to rethink this policy and stock some of that 20% of their assortment. Sales may be even greater when the consumer knows he can get the item right away.

Next post: ‘When to Discontinue Merchandise'.