Finding something to distinguish yourself from your competitors is one of the hardest parts of getting “in” with a store.  Having the right product and image is hugely important; however, so is being able to effectively communicate your product idea to a retailer.  As I mentioned last week, having a great story to tell is extremely important to becoming a memorable brand.  But here’s the secret….

Once you get the store owner or buyer’s attention, you can get them to notice you in a different light if you can talk the “retail” talk.  Using the right language while communicating can further elevate you in the eyes of a retailer. Being able to use the retail lingo, naturally and seamlessly of course, shows a level of professionalism and experience that will make YOU stand out from the crowd.  

Even if you’re just starting out, use the list I’ve provided below as a jumping off point and take the time to do your homework. Or if you’ve already been around the retail block a few times, flaunt it! Having an understanding of the business is priceless to a retailer because it will make working with you that much easier. Being able to walk the walk and talk the talk (even if you’re self-taught :), will help you enormously on your quest for retail success. 

Open-to-Buy
This is the store buyer’s “Bible” in managing his or her business.  Open-to-Buy refers to the merchandise budgeted for purchase during the course of period that has not yet been ordered.  The amount will change in relation to the business trend (i.e. if the current business is trending better than plan, a buyer may have more “Open-to-Buy” to spend and vice versa.)

Sell Thru %
Sell Thru % is the calculation of the number of units sold to the customer in relation to what the store received from the vendor. 
For example: If the store ordered 12 units of the hand-knitted baby rattles and sold 10 units last week, the sell thru % is 83.3%.  The percentage is calculated as follows:
(sold units/ordered units) x 100 = sell thru %
(10/12) x100 = 83.3% 
That’s a GREAT sell thru!  Actually too good… means that we probably could have sold more. 

On-hand
The On-hand is the number of units that the store has “in-stock” (i.e. inventory) of a certain merchandise.  Using the previous example, we now have 2 on-hand (12 minus 10).

Weeks of Supply (WOS)
Once you calculate the sell thru % for your selling items, you want to calculate your WOS on your best selling items.  Weeks of Supply is a figure that is calculated to show how many weeks of supply you currently own, given the average selling rate. Using the example above, the formula goes like this:
current on-hand/average sales = WOS
Let’s say that the average sales for this item (from the last 4 weeks) is 6, you would calculate your WOS as:
2/6 = .33 week  This number is telling us that we don’t even have 1 full week of supply left in this item.  This is telling us that we need to REORDER fast! :)

Purchase Markup % (PMU)
Purchase Markup % is the calculation of the retailer’s markup (profit) for every item purchased for the store.  The formula goes like this:
(Retail price – Wholesale price)/Retail Price * 100 = Purchase Markup %
Example:
If an item has a wholesale cost of $5 and retails for $12, the purchase markup is 58.3%.  The percentage is calculated as follows:
($12 – $5)/$12 * 100 = 58.3% PMU

Markdown %
Markdown % is the reduction in the selling price of an item after a certain number of weeks during the season (or when an item is not selling as well as planned).
If an item retails for $100 and we have a 40% markdown rate, the NEW selling price is $60.  This markdown % will lower the profit margin of the selling item.

Shortage %
The shortage % is the reduction of inventory due to shoplifting, employee theft and paperwork error.
For example: if the store had a total sales revenue of $300k but was missing $6k worth of merchandise at the end of the season, the shortage % is 2%.  (6k divided by 300k)

Gross Margin % (GM)
The gross margin % takes the purchase markup% profit one step further by incorporating some of the “other” factors (markdown, shortage, employee discount…etc) that affect the bottom line.

100 + Markdown% + Shortage% = A
A x Cost Complement of PMU = B
100 – B – workroom costs – employee discount = Gross Margin %

For example:
Let’s say this department has a 40% markdown rate, 2% shortage, 58.3% PMU, .2% workroom cost and .5% employee discount, let’s calculate the GM%
100 + 40 + 2 = 142
142 x (1 – .583) = 59.2
100 – 59.2 – .2 – .5 = 40.1% GM

RTV
RTV stands for Return-to-Vendor.  The store can request a RTV from a vendor when the merchandise is damaged or not selling.  RTVs can also allow stores to get out of slow sellers by negotiating swaps with vendors with good relationships.

Linesheet
A linesheet is the first thing that a store buyer will request when checking out your collection.  The linesheet will include: beautiful images of the product, style #, wholesale cost, suggested retail, delivery time, minimums, shipping info and terms.  Great news!  We have developed our very own Retail Recipes linesheet template.  If you are a current client (or past client) and would like to get a copy, please email hello@retailrecipes.com with “I want my linesheet :)” in the subject line.

So can you do it?  Share with us your thoughts on talking the “retail” talk here!

xo,

Grace Kang
Your Retail Product Mentor

p.s. A BIG, warm welcome to all of the new readers who joined our community! You are going to love the resources you will find here to help you make your product retail-ready… Enjoy!