Issues around the topic of pre-orders is a common theme in golf retail and I’m often asked to advise Pros who want a better understanding of how to manage this buying strategy.
Firstly, let’s consider what a pre order is. Fundamentally a pre order is a forward order of stock: A commitment from a retailer to a brand, to obtain their products and guarantee supply. Normally, in return for the forward commitment, a retailer will get an incentive of some sort - a discount or deal on the products ordered which should provide greater profit opportunities.
Brands like pre orders as they indicate money in the bank. Guaranteed business. Also, they shift some of the risk to the retailer. Depending on the category, they also dictate future production of goods and some brands will only create a percentage of pre orders - eg. 120% -to limit their risk. This is more usual for Apparel products that have a long lead time. Brands also like the commitment from pre orders, with the idea that if you’ve already spent your money with them, you won't spend it with their competitors.
“Brands like pre orders as they indicate money in the bank. Guaranteed business. They also shift some of the risk to the retailer”.
Retailers should like pre orders when it gives them access to a brand’s products. They get a good deal and they know what is coming in to store.
Retailers fall down when it comes to pre orders if they don’t have a plan, if they’re over-stocked, or have over-committed to multiple suppliers. And it can really hurt a retailer when a a product doesn't sell and more is scheduled to arrive.
Fundamentally I’m not opposed to pre orders. For many categories, they’re essential, and if you don’t place a pre order, you won’t get the product. Product lead times just don’t allow for "just in time" supply. It needs to scheduled, produced and shipped. However, the system has been abused by a few sales representatives and, on occasion, retailers have over-committed.
“Pre Orders are part of the planning process”.
A fundamental benefit of pre orders is that they allow you to work in advance. If you didn't pre order anything, and only waited for a customer to come into the store to order a product, life would be hectic. And, without the item in store, you’d most likely lose a lot of sales. Pre orders are part of the planning process.
For retailers to work successfully with pre orders they need to be organised and have a plan. If you have some historical sales data and a plan, you should have a good understanding of what you’ll sell next year, and when you are most likely to need it.
In the main, an organised retailer should be able to commit to about 70-80% of their annual purchases at the pre order level. However, this doesn't mean it should all turn up at the beginning of the season, shortly followed by an invoice. Several drops over the course of the season would be more manageable. I’d always leave some headroom (the remaining 20-30%) to provide some cash to take advantage of deals that will inevitably pop up. It’s also wise to allow some flexibility to enable a mid-season pivot on product if something is, or isn't, moving. You may have backed the wrong horse - leave yourself a bit of space to manoeuvre and get something else in.
Reasons to cancel or change a pre order
I’ve said in the past, that some people should cancel orders but that’s only in specific circumstances. If you have a year’s worth of stock of an item and you’ve just ordered another year’s worth, it’s madness and you should cancel the recent order.
Similarly, if you’ve placed an order with multiple brands that represent significantly more than a year’s worth of sales, you need to cancel some of them. Pre orders need discipline. If you don’t get it right, it will cost you and hurt your business. In the main, over-ordering hurts your bottom line and is one of the key reasons for poor margins. The reduction in pricing that you achieve trying to clear out stock you don’t need, is generally bigger than the reduction you earned in ordering more stock than you need.
Good news across the industry
The good news is that, in general, stocking levels across the golf industry are getting leaner and retailers are managing stock better with an UK average stock turn, currently, of around 2.5. Brands are managing their stock levels better, too, and that means there’s less dumping in to the trade. Recently, I’ve heard reports of brands reducing their pre order commitments, while others are trying to move to operate on a replenishment model.
At the end of the day, working with your key brand partners is often the way to navigate through these stocking issues. Some brands will be happy to change pre orders, others will offer the chance to return stock.
The key thing is to establish a plan for what you are going to sell. Pre order a proportion of it to get access to the product at the right time and a good price. Be disciplined and don't over commit. Cut out brands if you have to. Monitor your stocking against the plan, trying to maintain a 3+ overall stock turn.
Changes in the way we sell product has also had a significant effect on stock levels. Just look at custom fit clubs and how quickly they turn now. You almost need need next to no stock - just a fitting cart. As a result, profitability in this category is the highest it’s been for over a decade or more. With good discipline, and planning, many of the other categories could go the same way.
Phil Barnard is European Partner of Golf Datatech and Chairman of Crossover Technologies, the providers of market leading epos and business solution, XPOS, which was designed specifically for golf retailers. Follow Phil on Twitter @phil_barnard