Inside the mind of the merchant
What moves do you make when an item isn’t moving? How should a store balance the sometimes-conflicting goals of offering everything the customer needs, and maximizing every square foot of the sales floor?
“This is a pretty hotly discussed topic between myself and the parents,” said Mitch Stadtlander.
He and his wife Hannah took over his parents’ little general store called Cedar Mountain True Value in Duck Creek Village, located in southwest Utah.
“While they can often be averse to losses, I fully believe that if something is on the shelf for too long, it needs to be replaced with something that will move quicker,” he said.
Duck Creek Village, he explained, is an unincorporated area near Zion. “It’s about 30 miles to the nearest big box or grocery store, so it’s important that we carry everything tourists and cabin owners need to survive up here,” said the co-owner.
“That includes your standard hardware, produce, frozen meats, camping, clothing – I really mean everything,” he emphasized.
All hardware store owners reach a certain point where they must make that critical “return on investment” determination about items on their shelves.
How does a hardware store owner decide when it’s time to take slow-moving items away?
“My wife will frequently review low flow items in low-earning sections of the store. I don’t know how other stores handle it, but we like to review the annual sales,” he said.
They are much less focused on niches or wants at their store.
“We primarily try to save somebody’s vacation, or at least keep them from having to burn half a tank of gas just to get the one thing they forgot,” said Stadtlander.
All that being said, “a lot of low-flow products for us get to stay if they have the potential to really save someone,” he said. “But if a product isn’t critical and hasn’t moved through summer heat, winter snow, or spring mud, it’s got to go.”
Go time
There comes a time in the life of hardware store items when the owner must ask a hard question.
This owner shares his thoughts about the moment he decides to either remove a product, discount it, or hang in there with it.
“One method we’ve used recently, that has really simplified the decision-making process, is simply discounting the item – we use colored-dots on the bin label to indicate sales – and seeing if it begins to move,” he said.
If the item clears quickly after discount, then it’s apparent to the owners that price might be the issue. “If it still isn’t moving, we’ll discount it deeper. And if it still doesn’t move, we remove it,” he said.
Along the way on the journey to remove items, or not remove, the owners said they learned about customer habits related to product placement in their store.
“One thing I’ve learned about my own specific store, is that having a good-better-best model can often be detrimental,” he said.
“Our floor space is only about 4,000 square feet, and I have to have everything. I’ve found that for many consumables or cheaper tools, if there are two brands, and one is even $0.50 cheaper than the other, they will almost always go with the cheaper one.
“Even if the materials or ingredients are a mile away in quality, the #1 driver for their choice is price, to such a degree that even $0.50 will completely stall sales on the more expensive option and clear out the cheaper one right next to it,” he said.
Do good
Specific customer needs in a community can trigger a hardware owner’s decision to stay with an item.
“It’s the criticality of that particular item in relation to a project or emergency. I don’t care if I only sell one box of diapers a year, I’m not going to stop selling them,” he said.
“That’s because the difference between me having those diapers or not can be a make-or-break event for a family who’s only visiting on their short weekend and drove four hours to be here,” said Stadtlander.
He tries to always keep other emergency-solvers on hand regardless of margin or sales.
“Things like sandbags, wiper blades and blankets. Basically, I just think of how awful I would feel telling someone I didn't have it,” said this owner.
He passed along a tip to other owners and managers.
“Holding onto stock can quickly become as expensive as getting rid of it. As much as a store might seem like a collection of assets, it’s more of a constant flow of goods, both in and out. If there is a clog to that flow, you need to figure out how to fix it,” he said.
As with all things, there is a healthy middle ground.
Simply stocking your shelves with best-sellers can seem like a great way to maximize gross sales, he said, but for small, locally owned stores, your image matters for long-term health.
The hardware owner said: “If you can afford to save somebody’s week with a seldom-purchased item, I think there’s a lot of value to be found in that.”
The Juggler
The second owner is Michael Wynn, president of Sunshine Ace Hardware, with 13 stores – 12 hardware stores and one paint store – in Florida.
He talks about the challenges and experience needed to handle products that might not be moving off of retail hardware store shelves.
“Balancing a diverse assortment of SKUs to cater to various customer preferences while simultaneously ensuring strong cash flow and overall profitability can pose a challenge for businesses with an average inventory of more than 35,000 unique SKUs,” said Wynn.
He poses this question hardware owners can ask themselves: What process should you use to determine which SKUs are justifying their space on the shelf?
The simple answer is that there isn’t a simple answer, he said. “Each category of product brings with it some special attributes that can require a thoughtful approach before removing it.”
However, the hardware owner said, “XX items, not sold in two years or more, and items turning 1x a year or less get the immediate attention for removal as obsolete items.”
At his hardware business they try to keep obsolete inventory at less than 4.5% of their total inventory – with their current levels at just over 3%.
“That being said, we have unique high end SKUs that we carry to create an overall impression on our dominance in a category that may only sell 1x a year and we are perfectly fine with that. High end fishing reels are an example of this,” said Wynn.
As a general rule, he said, “our discounting structure to maximize cost recovery while creating an expedited SKU removal process typically runs 25% – 50% – 75% – and finally 90% off retail with 30 days separating each discount tier.”
That works for the average of their high margin items. But he said large bulky items taking up valuable space, which are costly to expend labor touching repeatedly, will likely start off at 50% to maximize labor productivity and space.
“Or categories like apparel that we may be heavily overstocked on and have higher margins – we may also move immediately to 50%,” said the owner, “to move quickly in cost recovery so we can reinvest in higher turn, higher productive SKUs.”
We will typically start off, he said, with a lower discount percentage when selling slow moving power tools or other low margin items.
“You have to be careful and be strategic in how you apply the ‘general rules’ that clearly don’t work across all categories,” said Wynn.
