3 Key Strategies to Increase Retail Revenue and Reduce Costs

Presented by Lisa Langas Golf Retail Consultant GIS February 4, 2009

AGM Survey Results 2008

Private Public Resort Off-Course # of round played 30,606 42,631 50,329 N/A Shop Sq Footage 1,239 1,293 1,766 5,036 Gross Merch Sales (000) $484 $487 $1,207 $2,875 Dollar Per Round $ 15.82 $ 11.43 $ 23.98 N/A Dollar Per Sq Foot $ 390.90 $ 376.77 $ 683.50 $ 580.95 Gross Profit % 30.9% 34.2% 45.4% 38.9% Cost of Sales % 69.1% 65.8% 54.6% 61.1% Turnover Soft Goods 2.5 2.4 3 3 Turnover Hard Goods 2.2 2.2 2.6 2.7

3 Key Retail Strategies

Agenda:
Provide simple tips and solutions to implement now to increase retail sales while reducing costs
Right Product/Merchandise selection Right Price/Pricing Strategies Staff Utilization

Right Product
Who is your customer?
Survey
Visual Written POS analysis Data collection

Results
Merchandise selection relevant to customer?
Brand Pricing Type

Right Product
Control Merchandise Purchasing
Open to buy plan Purchase Orders On Order logs

Sourcing for Merchandise:

Regional and National PGA shows Off-Price retail show Las Vegas Regional and local merchandise mart shows Internet offerings

Right Product
Merchandise Performance:
Stock to Sales performance Vendor analysis Average retail selling price point Markdown analysis Make changes immediately

Right Price
Initial Markup
High enough to meet profitability goals? What is eroding initial markup daily? Monitor via POS system How to increase without major impact on retail price

Right Price
What is Initial Markup?
It is the difference between the wholesale cost and the original retail price. Retail Price $100 Wholesale Cost - $ 48 Initial Dollar Markup Up =$ 52
It needs to be large enough to cover operational expenses and discounts like markdowns and still provide a profit.

Right Price

Key factors you need to know to establish the correct amount of Markup:

What is your net profit goal? Is this the same as your Gross Margin goal? What are your operating expenses as a percent to your retail income? Are shipping costs included in your golf shop expenses? What is your actual Markdown Rate? Do you preplan markdowns to take in season and use an estimated markdown percentage to calculate?

Right Price

Profit Goals

The net profit goal is the amount of income as a percent to retail sales after paying all expenses for operating the business:
Net Profit Goal Retail Sales Goal Net Profit % $ 70,000 $ 350,000 = 20%

For this shop, the goal is to make $70,000 (before taxes) which is 20% of the total income derived from Retail Sales

Right Price

Operating Expenses

Operating expenses like payroll, utilities, office supplies, etc. also need to be accounted for in your initial markup as a percent of the total retail income: Operating Expenses Budget $ 52,500 Retail Sales Goal $ 350,000 Operating Expenses % = 15%

For this shop, the operating expense budget is $52,500 which is 15% of the total income derived from Retail Sales

Right Price

Markdown Goal

Markdowns are a normal expense in conducting any retail business! Markdowns should be preplanned and the total dollar amount is represented as a percent to total income.
Markdown Budget Retail Sales Goal Markdown Rate % $ 87,500 $350,000 = 25%

For this shop, the markdown budget is $87,500 which is 25% of the total income derived from Retail Sales

Right Price

Golf Shop 2009 Retail Goals for $350,000 in Net Retail Sales:
Dollars Net Profit $ 70,000 Operating Expenses $ 52,500 Markdown Rate $ 87,500 % 20% 15% 25%

Right Price
Profit +Expenses+ Reductions = Initial Markup%
Retail Sales + Reductions % method: 20% + 15 + 25% 100% + 25% = 60% = 48.0% 125%

$ method: $70,000 + $52,500 + $87,500 = $210,000 = 48.0% $350,000 + $87,500 $437,500

Right Price
Putting it all together:
Net Profit $70,000 Operational Expenses +$52,500 Markdown/Reductions +$87,500 = $210,000 Cost of Inventory + $140,000 Total retail sales = $350,000 + 20% + 15% + 25% = 60% + 40% = 100%

Right Price
How do I use my initial markup percent to determine the correct retail selling price? Divide the known cost price of the merchandise by the cost complement of the markup goal.
Markup Goal Cost Complement 100% - 52%* = 48%

*Soft goods markup after reviewing business

Right Price
Correct way to use initial markup percent:
Calculation using our quick tip: Wholesale Price $33.00 Cost Compliment .48 Original Retail Price = $68.75
Round this figure up to an even $69.00 or $70.00 for pricing purposes.

Right Price
Incorrect way to use initial markup percent:
Why cant I simply take the wholesale price and multiply times 1.52? (100 plus the markup?) Wholesale Price $33.00 100 plus markup x 1.52 Original Retail Price =$50.16
Round this figure up to an even $51.00 for pricing purposes.

Right Price
Retail Markup By using the compliment of your
markup you are determining the dollar amount of markup needed based upon the retail price
$69.00 - $33.00 = $36.00 markup $36.00 $69.00 = 52% markup as a percentage of the retail price

Cost Markup When you use the markup plus 100,

this is determining the dollar amount of markup needed based upon the wholesale cost.
$50.00 $33.00 = $17.00 markup $17.00 $33.00 = 52% markup as a percentage of the cost

Right Price
Pricing Programs
Multiple tiered pricing
Low Mid High

MSRP Value pricing Loss leaders Impluse products

Right Price
Pre-plan your Markdowns!
Establish a markdown budget per month as discussed in our initial markup section! Can spend each month as necessary to move slow sellers, or save to use for larger sales. Controls the amount of dollars you spend on markdowns and helps you to implement your markdown strategy.

Right Price
What does a markdown strategy or plan look like?
Step 1. First start with frequent/smaller deliveries of inventory!
If the golf shop doesnt get overstocked by controlling flow of goods into the store, you dont have to take as many markdowns. Work deliveries for softgoods back to previous months color stories or basics so that you can continue to sell product at your retail price. If purchasing off price goods, factor into your sales promotions to help pay for markdowns on inventory with less markup.

Right Price
Markdown Strategy cont:
Step 2. Develop plan to I.D. slow selling merchandise. This is done by determining how much product you want to sell in a given time period and than determining your plan of action to make it sell:
Time: 4.0 turnover goal = 90 days selling model Amount sold: Plan to sell 50% of inventory in 45 days. Action: Merchandise not meeting this goal subject to markdown immediately.

Right Price
Markdown Strategy cont:
Step 3. Set markdown plan of action: a. Rotate/Focus/Signage = 50% sell thru b. 1st markdown soft sale most profitable c. 2nd markdown more aggressive d. 3rd markdown final clearance

Right Price
Calculating your Markdown Rate:
Wholesale cost Our Retail price Sold for price $34.75 $73.00 $54.75

Markdown Dollars Retail Price Markdown %

Original Retail $18.25 $73.00 = 25%

Sale Price $18.25 $54.75 = 33%

Staff Utilization
Staff Utilization
Is everybody on the same page?
Top down approach to operation

Are you investing in them?

AGM/PGA programs

Do they know/understand the retail business?

Utilizing pos system to improve sales via staffing Are they empowered to generate sales Rewards and incentives Team atmosphere

Staff Utilization
Training programs
Sales training Customer service standards Product knowledge

Visual merchandising standards

Daily/weekly/monthly
Creative displays Rotating merchandise housekeeping

Mini face lift every year

Paint Stain Clean carpets Replace fixtures

Resources
Lisa Langas
Golf Retail Consultant www.lisalangas.com lisa@lisalangas.com 303-470-3406

Off Price show Las Vegas February/August www.offpriceshow.com Magic apparel show www.magic.com National Retail Federation Smartbrief daily e-mails Retail trends and information www.nrf.com

Association of Golf Merchandisers AGM Desane Blaney Executive Director www.agmgolf.org Tom Hoch Designs Tomhoch@tomhoch.com 405-524-0505 www.tomhoch.com