Financial danger signs and how to avoid pitfallsby Udit Jain on June 13, 2007
As discussed above, weekly and monthly analysis is important to review actual performance vs. planned expectations. The objective being to recognize potential problems and issues before they become threats to the company. There is a variety of danger signs to watch for when reviewing performance, these include:
• Unplanned and continual decreases in comp store performance.
• Decreasing margins (gross and net) vs. plan while maintaining sales rates.
• Excessive markdown rates further eroding margins.
• Sustained overages in expense percents compared to plans. This could include:
• Increases in labor costs—wages, benefits, unemployment insurance,etc.
• Overspends in store maintenance budgets.
• Sustained losses in cash investments, etc.
• Poor inventory sell-through rates vs. plan.
• Weaker sales vs. plan in stores facing a specific competitor.
• A build up of aged inventory (Refer to the “Inventory—An Asset or a Liability?” section
The advantage of weekly reports is speed. These reports should incorporate more than Week, Month and Season summaries. They need to include This Year actuals, Last Year and Planned data. Many fashion retailers also include at a rolling three-month view to help them identify current trends. The past is littered with failed retailers, most of whom could say with hindsight, where they started to go wrong. The advantage of actionable weekly and monthly reviews is clear insight—insight into trends both positive and negative. Running a business on traditional reporting methods costs the retailer time and clarity. Ignoring warning signs of poor or undesired performance will lead to a risky future.
Some general guidelines are:
• If desired sell through are not being achieved,take the markdown early. A 20% markdown early in the season may do a lot more to clear the goods than a 50% markdown in the end of
• Consider developing an automated markdown recommendation model, that identifies under
achieving products and generates markdown recommendations.
• When comparable store sales are declining, check that you have enough inventory on
hand in the right categories. Then drill down to identify categories that are still growing and
exploit those more.