Case Study – Fillings: Planning pays off.

I’m honored that Jay Filling has asked to guest post on our blog so he can share with fellow retailers the key to his remarkable performance improvements within a few short years. Thank you Jay for being so open with your story. ~ Tim Smyth.

I recently thanked Tim Smyth and his team for hosting another conference and asked 2 questions.  Why weren’t more of their clients in attendance?  What percentage of those in attendance use outside OTB planners for their purchasing?  After a brief discussion Tim asked me to tell our story and speak about our success with both.

First, let me say we have no unique attributes unavailable to any retailer.  Our success is due to our constant search for improvement.  We moved from an owned location of 65 years to a cool new leased location 5.5 years ago because we felt it would increase traffic.  Maintaining a fresh attitude releases a contagious energy that customers crave.   It is the improvement in a short period about which we are most proud.   If your store volume is between $500,000.00 and $10,000,000.00 then our story may be beneficial to you.

Filling’s is currently in our 86^th year and my personal involvement spans 35.  Our first computer in 1978 was the size of an SUV and had a million times less computing power than my IPhone.  We operated for 65 years with adding machines and a purchasing strategy based on units.  We are currently a single store operation of 3600 SF selling men’s and women’s apparel at the higher end.  Our market is a city of 57,000 and a tri county area of 1,000,000 in south central Pennsylvania.

Prior to the October 2010 Smyth Retail conference we did not use calculated OTB or outside planners for several reasons.  One, our experience with “consultants” bled us of cash and involved complicated and unsustainable action strategies.  Two, we had yet to meet the offensive minded OTB planner.  Three, we made decent income from a modestly profitable operation that was recognized with distinction in our market.

In my opinion many surviving small to mid-sized specialty apparel retailers contain similar fundamentals…solid taste level, passionate about clothing, beautiful but often times aging infrastructure, well merchandised, good marketers, decent salespeople, relationship specialists, etc.  Most owners are good at working for their company.  The practice of actually running it is another matter.  This was Filling’s in 2010.

We had operated on Smyth software since the early 1990’s at the class level.  When Merchant Plus! was rolled out we changed to SKU.  We quickly reported measurable improvements in the areas of margin, customer service, and targeted marketing.  It quickly became apparent that in order to fully utilize Merchant Plus! we needed more information.

If you have not done so already I recommend you attend a Smyth Retail conference.  You will be surprised what you don’t know about Merchant Plus! and the resources that Smyth Retail provides.  We now feel the same about OTB planning.   In 2010 we attended a client conference to learn more about Merchant Plus!  The keynote speakers happened to be the two founders of Management One and two of their affiliates.  Their message was distinctly different than most planners as was their compatibility with Merchant Plus!.  Three weeks later we hired John Adams and Dennis Levine, both Management One affiliates.  They are seasoned professionals who also serve as mentors to new recruits of Management One.  Both maintain a solid understanding of Smyth Retail software.

John and Dennis are not actually planners, they leave that to the IT and quantitative geniuses.  Our monthly (or as often as necessary for questions or concerns) consult is an interpretation of results and an intensive presentation of our new plans.  We spend more time developing action plans than we do filling up inventory buckets.  These plans are simple, focused, and understandable tactics designed to maximize return on inventory investment.  We use various Smyth Retail reports to drill down to the vendor or sometimes the assortment level.   Price points, IMU, vendor mix, freshness, maintained margins, inventory levels, GMROI, and ultimately OTB are monthly topics of discussion.

Planning sessions focus on techniques designed to optimize either strong or weak positions within any class or sub class.  Small markdowns are sometimes employed to get in front of negative trends before they become bigger markdowns.  In no way are we promotional, but we are aggressive marketers and event specialists.  Clearance has become challenging at best so we find this strategy works well.  It is important to note our markdown percent is actually higher since we started.   John and Dennis have a unique strategy for cashing out a season and moving aggressively into the next.  This temporarily decreases margins, but the impact of fresh goods will quickly reverse that trend. The result is leaner and fresher inventory.  Fresh goods turn faster so up goes the margin dollars and ultimately our net.

John and Dennis are constantly seeking incremental improvements.  Once we got our inventory under control the gains became more modest.  This is when the true value of this program became apparent.  Our meetings shift emphasis to revenue enhancement and other factors because OTB planning requires less time.  The meetings do not become shorter at this point, but they do become more meaningful to our net.

We look at break even and operating expenses seasonally with a concentration on cash flow.  Cash flow is continually evaluated, and positive results are immediately achieved with the discipline of their coaching.   Goals are benchmarked for all key metrics each fiscal to minimize the subjectivity of evaluating results.

This month we plan to install counters to measure door openings.  We will establish performance values associated with each opening.  This should enhance our measurement of marketing efforts.  It will also provide another layer of detail for salesperson evaluation.

The bottom line here is results.  Those remaining in this industry at our level have done most things well.  My recommendation to those not using an outside OTB service is to try it.  Management One requires no contract.  Without satisfactory results they ask that you don’t pay the bill and move on.  Maintaining the discipline of monthly conferences and defined actions will make a difference in your market share, your cash flow, and your bottom line.  Filling’s is 85 years old.  I have learned more about purchasing and return on inventory investment in the last 3 years than I did in my first 32.

To illustrate our results we have submitted 3 sets of data beginning with the first month using Management One, then comparing May 2011 to current results.  A pleasant surprise during this process is the growth of revenue.  Playing offense on trending classes as well as defense on retreating classes has a huge impact on sales.  We have learned that markdowns, if managed properly using a long term viewpoint, will increase your net.

MEN’S DEPARTMENT	Dec-10	May-11	May-13
Sales Increase over 2011	N/A	N/A	21%
GMROI	2.1	2.41	3.09
Maintained Mark up	47.3	47.2	49.2
Turnover	1.74	2	2.22
Fresh factor 90	75	76.5	93.2
Markdown %	31	33.1	33
IMU %	60.04	60.23	60.6
WOMEN’S DEPARTMENT
Sales Increase over 2011	N/A	N/A	21%
GMROI	4.99	6.54	5.74
Maintained Mark Up	55	57.8	56.2
Turnover	3.63	4.33	3.77
Fresh factor 90	64	119	124.7
Markdown %	17	15.1	21.9
IMU %	62.05	62.28	62.99
COMPANY
Sales Increase over 2011	N/A	N/A	21%
GMROI	2.69	3.3	3.88
Maintained Mark Up	50.4	52.1	51.9
Turnover	2.13	2.37	2.66
Fresh factor 90	69	77	101.4
Markdown %	25	26	29
IMU %	60.71	60.93	61.45
Net Profit %	1%	2%	9.50%

 

Our return on the Management One investment is between 7 and 8 to 1.   I recommend them to anyone not currently seeing returns in excess of 6 – 7% net.  Ours is currently 9.5%.  I recognize this blog sounds like a patronizing advertisement for Smyth Retail as well as Management One.  Take it as you want, but these guys will help you.  They work as hard for your success as you do.  They are also nice people with a commitment to excellence.

We have been retailing apparel for 8 ½ decades.  Nothing in our life cycle has had a greater impact on our bottom line.  I am happy to share more detail with anyone interested, but better yet call Tim Smyth (866.769.8478) or John Adams (858.486.3769).  This process is simple, inexpensive to maintain, and requires far fewer additional hours than you might expect.  In fact, we have reached a point where it saves us time.