by Ed Shanaphy
For those of us in tennis or fitness who “own” our merchandise shop and do all the buying and selling within our own company, August is a perplexing month where we are always left asking: Should I have a sale before I close up shop?
Every year, starting in May, I hear it from a summer member: “I’ll wait until August when you put everything at half price.” It’s part of the seasonal gossip at any club: When is the shop sale starting?
Running a retail operation at any time is a tough job. Stores come and stores go in malls, on high streets, and online. But, year after year, Directors of Tennis and Fitness are expected to have a wonderful shop, offering all that every member could possibly need or desire, and then in four months if at a seasonal club, break down the shop, close the club and go into hibernation for 8 months. All while maintaining cash flow and, hopefully, showing a profit.
Well, it’s mid August and I am debating whether I should have a sale or not. Almost every other pro I know says: “By all means get rid of your inventory and start afresh next year.” I say: “Not so fast!”
There are several factors that any retail operation has to look at when conducting any sale, and having worked in the entertainment, marketing and distribution worlds, I’m well aquainted with carrying inventory. I pulled out the 1998 financials from my entertainment company this week to look at how I handled inventory and retail twenty years ago. Inventory was $1.7 million in a warehouse at a fulfilment center. What did I do twenty years ago that might affect how I look at a “Sale” at my tennis shop in 2018?
In trying to summarize I find myself thinking of four distinct questions.
- What Is My Reason For Having A Sale?
- What’s Is My Inventory Level Compared To Years Past?
- Can I Incentivize Usage or Traffic With A Sale?
- What’s My Cash Flow and Profitability?
Am I having a sale just because it’s August? Do my members expect a sale? Perhaps. And sometimes, I would think, that understanding and acceding to member expectations is a good thing. However, to have a sale every year, would mean that many members might wait until the sale to make their purchases – purchases you would have made more profit on had they made them earlier in the summer. But if I have a sale every year, members do expect it and will wait.
We are lucky in some respects, as retail operators in a tennis or fitness facility, that we don’t have to carry overheads like utilities and therefore can really look at the profit margin per item as a true profit margin. Or can we? Have you added in the payroll cost of your front desk staff if they are on your payroll, selling merchandise? How about freight? Have you added that cost to your bottom line in your books and singled it out against retail sales? Are you depreciating the costs of fixed items like racks and hangers and Point of Sale software if you require that?
I also like to look at my inventory levels versus the previous year. In a growing environment, it’s natural in a positive and growing business cycle to have a larger inventory. I need to look at what I carried the last year on my financials while also looking at freeing some space in storage and in the shop with older items going on sale. If you have monogrammed or embrodiered inventory, I find it’s not worth giving a big discount as one has to consider that the shop is really the only point of sale for such personalized goods. Also, sneakers and trainers don’t really change in fashion year to year and can be held over 8 months and look new the following Spring.
What I did in marketing was use a discount or sale to bring traffic to my website or phone ordering lines and mailbox so I could get a second mailing or insert back to the customer with their sale order. Perhaps creating traffic for further full-price sales is my favorite reason for offering a sale. But how can I do that at a country club?
Well, there are several things you can do. Let’s take for example a tournament coming up on the weekend. Most Directors of Tennis get a percentage of the tournament fee – if you’re not you need to renegotiate your package! I tend to offer discounts on sale merchandise to tournament players that weekend and market that. Incentivize them to play in the tournament and the higher turnout covers the discount of my stock through collected tournament fees. But there’s more…
I do the same thing early in the season to help cash flow. I hold an early Adult Camp where all campers get 15% off merchandise if they do two or more days of the four day camp. Use the merchandise discount to gain more members per court and per professional to lower your on-court cost percentage. I usually sell about 40 percent of my held inventory which shows me what is going to sell early in the season and usually pays for my initial purchases in regards to the shop.
Profit also has an affect on how I view my inventory. If I am showing a larger profit than expected for for the summer or year – a year with little rain or no staff issues – I might sit on my stock and write some of it down. If I am showing a small gain or a loss, I will help my cash flow and sell off as much of my merchandise I can late in the summer.
It’s a four-pronged attack when looking at inventory and retail sales, and each year is a different story. So, take all of the above issues into account and do what is best for you given your situation.