Course Title

1. 10 Ways to Buy Smart . . . and Sell Smarter Course Title Tracy Leenman Musical Innovations July 2013

2. 10 Ways to Buy Smart Does this look all too familiar? • Creating a model inventory by department • Getting your departments in proportion • Setting “open to buy” system • Defining your selling “sweet spot” • Unloading your “MUTT”s • Buying smarter • Planning for seasonal selling • Merchandising to sell • Monitoring the numbers • Expanding your “sweet spot”

3. What’s Wrong Here? A Hypothetical Example

4. Creating a Model Inventory • Work department by department • Start with your obviously “overstocked” or slow-moving departments • The smaller the “department” you study, the more accurate your information will be and the more inventory control you will have • Look at a time frame (the larger the better) • e.g. one full year less Christmas selling season (10 months) • or one full year less rental season & Christmas (9 months) • Look at gross sales & average inventory in each department by season NOTE: Average Inventory = [Inv (Day 1) + Inv (Day 2)] ÷ 2 • Average inventory % of total hypothetically should match % of total sales • Sales floor space and other expenses hypothetically should be proportional, too.

5. Creating a Model Inventory • Divide/count items in one inventory department by price point • Figure out inventory load (COGS) for each price point • Divide/count items sold in that department by price point (for each time frame) • Figure out GP and GPM for each price point (gross sales – COGS) • These two %’s should hypothetically match for each department i.e., Hypothetically, if 37% of the profit you made on electric bicycles came from bicycles you sold for $300-499, then 37% of your stock of electric bicycles can be be bicyclesyou would sell in that price range.

6. Creating a Model Inventory • Figure out what % of your inventory load (money spent on inventory to sell) can be devoted to each department, then to each price point. • Turn = COGS ÷ Average Inventory, so If you want a turn of 2,then Average Inventory should be COGS ÷ 2 If you want a turn of 4,then Average Inventory should be COGS ÷ 4 REMEMBER: Average Inventory = [Inv (Day 1) + Inv (Day 2)] ÷ 2

7. More on Model Inventory • Hypothetical example: If you sold $20,000 (your cost) of electric bicycles last year(10 months, excluding the Christmas selling season), and you want a turn of 2, you can stock about $10,000 (your cost) of bicycles during those months Within that $10,000, they can be divided up in price points by the same %’s as your GPM’s. Hypothetically: If 37% of the bicycles you sold went for under $300, then 37% ($10,000 X .37, or $3,700) can be bicycles you would sell for under $300, atthe GPM you desire in that category. If 2% of the bicycles you sold went for over $700, then 2% ($10,000 X .02, or $200) can be bicycles you would sell for over $200, atthe GPM you desire in that category. EXCEPTION: You can’t buy a bicycle you will sell for over $700 for only $200, but you need at least one REALLY NICE item to make your store look legit . . . but you also need to admit you’re just not a high-dollar bike shop!

8. Setting Your Open to Buy • What is “Open to Buy?” • Your “budget” for that department, category or sub-category. • A way to ensure your inventory is balanced and sellable. • A way to ensure you have the right stuff at the right time, so you will be able to serve your customers better. • The amount of inventory $$ you can have invested in those items. • If you are over your “Open to Buy,” you don’t buy any more stuff until you sell enough to free up the $$. • When you free up the $$, you can buy stuff that will sell more easily, and you will be more likely to have the stuff your customers want. • If you are under, and you are “open to buy,” you buy the stuff you needto maintain appropriate inventory balance.

9. Finding Your “Sweet Spot” • Where do you make the most $$? Not gross sales, but GPM and GMROI? • These are the places that deserve the most inventory load $$. These are the places that deserve the most inventory load $$. Do you cater to beginners? Student horns, student guitars, etc.? Do you lose sales of these to the big box stores and sell more of the next price point up? Are you a pro or specialty shop? • These are the customers who should be the target of that % of your marketing dollars. • These are the customers who should be the target of your SAF. Make sure they are comfortable in your store.

10. Expanding Your “Sweet Spot” • Consider the pros and cons of reaching outside “your box” Plan on the funds necessary to merchandise, staff, advertise Plan on the time it will take to grow that business • Can you be all things to all people? YES! But target each group separately for maximum results. Professional musicians look for a different SAF than middle school parents. Flutists look for a different SAF than rock drummers. • Can you expand/change this? YES! But considering the cost of getting new customers vs. keeping current ones, it’s easier said than done!

11. Unloading your MUTT’s • What do you do with departments/price points with too much stuff? • No more buying until $$ is left in your Open to Buy – just like living on a budget! • Do whatever you have to in order to move the excess. Engaging, rather than alienating, your commissioned sales people Freeing up cash to buy what you can sell, at a good margin! • Set a time frame for lowering price, selling at cost+ or even selling below cost(Do this on a regular basis) • Offer attractive add-ons or package deals e.g. free lessons, discount on accessories • Make “feature” displays (e.g. end caps) • Garage Sale or Rummage Sale • Use your website, social media, eBay

12. Buying Smarter • Using Alan Friedman’s Rule (if there is room in your Open to Buy!) • Buy what you can sell before you need to pay for it • Buy only what you can sell in x-days, where x=360 times %GPM • M.I. Rule: “One less and you’d lose a sale” • Don’t be afraid to say “. . . But we can get it for you quickly!” • Watch for Show Specials (MEA’s, etc.), Special Offers (rebates, etc.) • Watch for minimum orders, free freight amounts, etc. • Remember, everything is negotiable! Re-source carefully . . . and often. • Ask for discounts for larger school bids, exhibits/shows and other events. • Check every invoice carefully to be sure you get prices promised. • Take early pay discounts when beneficial.

13. Keeping Track • Re-run all your numbers after each “season” ends • Don’t assume any parameters have stayed the same • Make changes as needed in OTB • Look at what worked & what didn’t • Engage sales people, get their input (“We never had enough . . .”) • Look a level “deeper” than before (sub-categories) • Keep track of aging inventory • Change/rotate feature displays • Watch for local and seasonal opportunities that require additional stock

14. Thank you! Tracy E. Leenman Musical Innovations 150-G Tanner Rd. at Butler Greenville, SC 29607 (864) 286-8742 tracy@musicalinnovations.biz