Of the many questions that come up when we initially meet with prospective clients, the one that we spend the most time - and analysis - answering is, “What can I expect from my sale?” After all, for many of our clients, the proceeds from their GOB represent the lion’s share of their retirement savings. I think what becomes apparent to every store owner we work with is how complex a professionally executed sales-event really is. Too often this simple question is answered with simple answers, “run your sale at Christmas, you’ll do a year’s volume plus or minus.”
The more realistic and complete answer is dependent on many factors: (a) the store’s location and history, (b) strength of the customer base, (c) inventory level and product mix, (d) the current showroom floor dynamic of mark-up and point of sale discount if one is offered, (e) normal operating expenses incurred during the term of the sale, (f) the effectiveness and affordability of local advertising media, (g) time of the year, (h) reputation of the store (i) local codes that may limit what you can do. Additionally there may be issues with creditors, landlords, or taxing authorities. The good news is there are reasonable common-sense answers and solutions to all of the above.
Consider the following list of details that goes into the planning of any sale-event we do. It starts with a realistic projection of expected results. A well constructed projection should consider all proceeds and all expenses. It should estimate how much owned-inventory will be used and how much fill-in inventory, if any, will be needed for the store to meet its potential. The projection should likewise estimate the resulting sale-margin that will be achieved after all discounts are applied and the local codes that can affect the length of the sale and the use of fill-in.
Let’s revisit timing - timing is important. Is the store over inventoried or under inventoried? What is the financial health of the store? What are the goals of the sale? In fact we conduct sales throughout the year for a whole host of reasons. Although timing is important, a successful sale is not necessarily dependent on timing. It’s more dependent on a store’s reputation, its goals and the theme of the sale.
Then there’s the issue of staffing and by that I mean do you have enough staff to generate a year’s volume in a sixty to ninety day period, or conversely can you retain the staff you have once it’s known that the store is closing and they’re all losing their jobs. We typically recommend creating a special incentive program. A stay-bonus to retain key employees and sales staff that’s linked to the results achieved in the sale. How the incentive program works can differ from store to store and is typically developed on a store-by-store basis. The objective is to incentivize the staff to stay through the last day of the sale. Additionally the liquidation company will provide an experienced supervisor who is an industry professional. Among the supervisor’s many responsibilities is selling on the sales floor.
We can’t stress enough how important it is to plan the advertising budget and the media campaign for the entire length of the sale before the sale begins. A comprehensive and global media plan takes time and thought to create. The ad campaign represents one of the largest expenditures of the sale. Overspending on advertising won’t necessarily generate a greater result. Under spending can keep the sale from reaching its full potential. In every sale we plan we publish the ad campaign and all media schedules in advance so it can be discussed prior to implementation. The ad campaign is then managed on a week by week basis during the sale with adjustments being made according to results and effectiveness.
Other key factors that can impact results have to do with the amount of owned inventory on hand and how aged it is. There aren’t many desirable options for unsold inventory once the sale has ended. If your store is highly over-inventoried it may make sense for you to have a normal Christmas, not replace inventory, and conduct a sale in the spring using a higher level of fill-in; or to conduct the liquidation in two phases. We have used both of these approaches successfully.
A highly aged inventory can affect results as well. Making the decision to review and price-adjust older merchandise, where appropriate, to current pricing can have a major impact on your profitability. We worked with a store that had $1,200,000 of owned inventory at cost on hand. Over $670,000 was between five and fifteen years old with an average mark-up of two-point-two. Whole sections of this store’s inventory were still priced on the basis of four-to-eight-hundred dollar gold, with no adjustments for increases in the price of diamond melee. If no action was taken the store would have been dependent upon fill-in inventory to support the deep discounts being advertised in the media. The solution was to bring the highly aged inventory to current pricing and offer it at the deep discounts being advertised. The result was a high sell through of the aged goods.
Going back to the original question, “what can one reasonably expect from their Going Out Of Business Sale?” A professionally planned and executed event in a store with longevity, a good reputation, using a theme that suggests “A Total Liquidation” is underway, and the correct time of the year for your situation can reasonably expect to generate from 85% to 150% of the store’s annual volume in an eight to twelve week sale-event. This is the “broad-range” we see the majority of stores achieve. Results that exceed this range can happen and we have seen our share of them. Results that exceed this range shouldn’t be the basis of your expectation, but it can be the result of a well planned sale.