5 Ways to Improve Your Sell-Through Rate
You would be hard-pressed to find a retailer who wouldn’t LOVE a high sell‐through rate. A high turnover means you’re hitting the right customers at the right time with the right merchandise. But, what if your reports are showing the opposite?
What does sell-through rate mean?
Let’s back up: What is sell‐through? This metric is defined as a percentage that compares the amount of inventory a retailer receives against what is actually sold within a specific time period.
How to calculate sell-through rate
Sell‐through = units sold / initial units received x 100
Why does calculating sell-through rate matter?
Sell‐through helps assess your inventory’s performance. Depending upon the time period, a low sell‐through percentage—say, less than 30%—might indicate that your price is too high, or you overbought and need to take an action to move the merchandise before it becomes even staler. A higher percentage, like 80%+, can indicate a hot trend, too low of a listing price, or that you bought too conservatively and may want to expedite a reorder.
Tip: Calculating sell‐through for brands can help you build a vendor scorecard that will give you the data you need to negotiate better pricing and terms with your vendors.
So you’ve run your reports and are seeing a low sell‐through on some items, brands, or even full categories: now what?
When a product is slow moving, retailers often resort to markdowns as the default mechanism to get that merchandise out the door, but doing so means your margin will take a hit. When your point of sale doubles as your inventory management system, its reporting can provide intel that will allow you to move under‐performing merchandise through other techniques.
Ideas for improving sell-through rate
We’d wager there isn’t a single retailer out there who hasn’t made a handful of poor buying decisions, so here are a few tactics that the many savvy ones use when such happens:
Discounting isn’t completely off-limits, but while they are a quick way to improve inventory turnover, create cash, keep fresh goods flowing and correct buying mistakes, markdowns should solve problems—not create new ones. So before you start doing mass discounting at a percentage that sounds attractive to you, be sure you’re calculating just how much of a hit your margin is going to take once it’s stickered with a sale number. According to Marc Weiss, CEO of inventory planning firm Management One, “a 2% reduction in markdowns adds almost a 1% increase to your profit.”
When a retail business has multiple channels or stores, it’s crucial to understand how inventory performs at each and act accordingly. Leveraging a POS system’s ability to initiate transfer requests between channels ensures that stores stay balanced and well-stocked. After all, if an item is performing poorly in Boston but flying off the shelves in San Francisco, why would you let it collect dust on the East Coast instead of sending it to your sister store to sell at full price?
3. Pop‐up Shop or In‐Store Event
Without another store or online channel to move inventory, a pop‐up store or stand at a local outlet is a creative way to gain exposure and move inventory. Think outdoor market, holiday bazaar, salon, or fitness studio, depending on where the clientele you’re trying to reach frequents.
Another option is to engage vendors for in‐store events, like trunk shows. In turn for the extra exposure you’ll be giving the brand, work with the vendor to offer a free gift with purchase or additional perk to incentivize sales.
Tip: Remember that the number of days a product has been on the floor is a necessary piece of data; simply running a report of your best and worst sellers without this metric isn’t indicative of a product’s sell‐through.
Merchandising is often an overlooked mechanism for keeping a store fresh and tricking customers into thinking older products are actually brand new. By using data to understand customers, retailers can see, for instance, what merchandise they buy in tandem and then act to co‐locate. People respond to fresh, stimulating experiences, and with your best customers coming in multiple times over a given season, moving items around, as well as grouping them around a theme or telling a story, can all be highly effective.
5. Renegotiate with Vendors
Retailers who have data have proof, and the smart ones use it. They can analyze everything from their traffic and conversion rate to their sell‐through for each of their brands. Armed with this data, you can push vendors for better terms, margin, or pricing. They want to see high performance as much as you do! Requesting merchandise exchanges or returns when an item or brand is not meeting expectations is another tactic.
Agility and responsiveness are directly tied to profitability. No longer can retailers afford to “set it and forget it” when it comes to buying. Says Paul Erickson, another of Management One’s top retail experts, “once merchandise has been on the floor for ten weeks and hasn’t sold, the likelihood of selling it at a profit is nearly zero, and the likelihood that you’ll get any profit from it is reduced every day it sits there.”
That’s why it is so essential to consistently keep an eye on your inventory data, prioritizing these sell‐through tactics when you identify merchandise that isn’t moving, while at the same time standing by to place quick reorders for products that are trending early in the season. And of course, the more data you collect over time, the more prepared you will be for future buys, with a better understanding of what your customers want, and when.
If you’re interested in finding out more about calculating sell-through rates, then get in touch with the point of sale experts at Heartland.
Heartland is the point of sale, payments and payroll solution of choice for nearly 1,000,000 businesses on a mission to sell more, keep customers coming back and have more time to focus on building a remarkable business. Learn more at heartland.us