30 Cases of Windex Please: Retail Consulting Case Study
For retailers – or any business for that matter – cash flow is a key metric. Having free cash at the end of the month is often the difference between keeping the doors open or closing for good. Additionally, having free cash on hand gives you the ability to quickly react to market trends by purchasing inventory, hiring new team members, or marketing your business.
While it is true that most retailers’ cash is tied up in inventory, payroll and fixed expenses such as rent and utilities, I am often amazed at the cash that is hiding in the nooks and crannies. While our Company’s core business is assisting companies with their retail sales and management training needs, we also try to lend assistance with help our clients improve their overall operations. This was the case when we were recently visiting some store locations on behalf of a client.
An Unproductive Use of Cash
They are a regional chain of specialty store located across the Midwest with about 65 locations. We always like to visit our clients’ locations so we can get a feel for their business and customize our retail training programs on their behalf. In this case we spent two days visiting stores with two district managers and then had a wrap-up meeting at the client’s home office.
While visiting the stores we spent time in the stockroom/office looking around and we found on average: 1.25 cases of glass cleaner, 2 cases of paper towels and 6 boxes of paperclips. That does not count the other excess office supplies excess inventory and other wasted resources that we found. Just on these items we did some quick math and got this result:
· 1.25 cases of glass cleaner ($40 ea.) x 65 locations = $3,250
· 2 cases of paper towels ($55 ea.) x 65 locations = $7,150
· 6 boxes of paperclips ( $1.29 ea.) x 65 locations = $503
· Total monies spent: $10,903
Now I am not one to skimp on keeping a store clean or on organizing paperwork, but a case of window cleaner is 4 gallons (probably a two year supply) and 6 boxes of paper clips yields a total of 600 (the stores use an average of one clip per day for another two year supply)! It seemed to me that this was $10,903 that could have been better spent in other ways such as inventory, hiring a new sales associate, creating a sales contest, running an ad or even paying our fees.
Digging in to Find Hidden Gold
When I brought this observation up to the client’s Director of Operations he was shocked. After some investigation he found that one of his team members bought these store supplies in bulk because it saved about 20% on the total cost. Not a bad motivation, but that still means that the company tied up a significant amount of cash unnecessarily.
After digging deeper, our client found that they had probably had almost $100,000 – more than $1,500 per store – tied up unnecessarily. Now I ask you…what would $1,500 per location in free cash flow do for you?
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– David Goodwin is the Principal of the Retail Advocacy Group. As a 30 year veteran of the retail industry he has directed the activities of hundreds of retail locations and thousands of retail sales representatives and store managers. RAG offers consulting services, retail sales training and management training programs. You can learn more at www.retailertrainingservices.com.