Managing the

Merchandise Monster

A successful retail program starts with the retail manager's budget and concludes only with that last-second impulse purchase at the end of the guest's day.

By Allen F. Weitzel

Talk to a salesman. Order a few trinkets. Price the goods. Line the products on a shelf. Viola! A merchandise store inside your park. Well, it's not that easy and the magic needs to happen before those souvenirs hit the shelves. Let's examine the ins and outs of the retail inventory system.

A successful merchandise operation begins with the annual budget and its sister, the spending budget. You derive your annual budget by forecasting your anticipated gross sales based on your previous year's numbers. Estimating park attendance and expected merchandise per cap are key tools in establishing your annual income projection. Compute your spending budget by predicting gross sales, multiplying that number by your cost of goods sold percentage, and then subtracting the dollar amount of the leftover inventory from last year. This will give you the amount you can spend on new or replacement inventory.

Use a balance sheet to reflect the funds you have available. Deduct the amount of each purchase from that spending total, like balancing a check book. Break this spending budget into categories: new goods, souvenirs, impulse items, restock inventory, fad items, unexpected purchases and store staples.

You have several avenues to purchase product for your park:

Gift shows—Buyers visit an annual gift show to see what products vendors are offering. The impulse "spending bug" can bite the unsuspecting gift buyer by getting caught up in the festivities of the event. Parks with small budgets may find that gift shows are not ideal buying locations, easily burning an annual budget in one day. Bring your spending budget with you, listing the categories in which you still need to purchase product. All buyers can take advantage of show specials; sometimes negotiating free freight or other deals.

Merchandise catalogs—Catalog shopping allows you to take all the time you need to review products and consider different ideas. The downside to catalogs is that the product could be out of stock by the time you order, and photos may not do the product justice.

E-Commerce—Web sites. Fast access and fast delivery, but not all the shopping hazards of E-Commerce have been uncovered. Proceed with caution.

Sales people—Buying from sales people is like dating; you have to kiss a lot of frogs before you find the prince. Once you find an honest, dependable sales person, he or she could become a valuable mentor to help you avoid purchasing pitfalls. Some sales people offer consignment to get their goods into your stores, which allows them to move their own displays around to get the best selling locations. Do not allow sales people to pressure you into purchasing products or quantities you do not need. Unless you enjoy this style, avoid accepting appointments by drop-in (or cold call) sales people. If you start doing so, the word will spread fast that appointments are unnecessary in dealing with you.

Buying direct—Weigh the pros and cons before proceeding. If a purchase goes sour, without a sales representative, you may not have any leverage with the manufacturer. However, the cost savings can be significant.

It is a fallacy that you have to buy imprinted items in large quantities. You may get a better price per item when you buy 240 dozen coffee mugs, but you should never tie up capital in inventory, unless you are sure the item will sell. Use suppliers who will sell you small quantities of custom logo goods, then track how well the items sell before increasing logo product orders.

Art work must be attractive and match well with each item to assure successful sales of souvenirs. Warning: though it may be your artwork on a piece of merchandise, you may not own the artwork if you did not provide the original logo or if you do not pay the supplier for the art charge to produce it. Investigate this situation before ordering logo merchandise to assure you can use the artwork elsewhere.

Before they can sell to a new buyer, suppliers need the buyer's business resale number and a list of credit references. Have your Accounting Department prepare this information in advance. Provide this information (printed on your letterhead) at the start of any new buyer/seller relationship.

Your primary tool in managing your inventory is your Purchase Order system. A Purchase Order is a promise to pay for an item if the supplier accepts your Purchase Order (with all the terms filled in) and ships the goods as you have instructed on the Purchase Order. Purchase Orders allow the buyer to use or reject the ordered item before paying the bill. If you do business with a supplier who wants payment in advance, the product will not be shipped until the supplier receives the payment; hence, not arriving as fast as you may need it, causing you to lose sales. Buying by Purchase Order allows you to start selling the product before the invoice is due. Use a separate Purchase Order number for each purchase.

The Purchase Order should include the following:

1. Specify a cancel date, to prevent late arriving or outdated shipments. (i.e. "This Purchase Order is void if the product is not shipped by 'x' date.") To hasten delivery, insert a quick cancel date.

2. Detail the "ship to" information. This is a important if your park does not have a central warehouse.

3. If you call in an order, but a confirmation Purchase Order is required, prevent double shipments by writing on the P.O. "Confirmation of a verbal order, do not double ship."

4. Make sure each order is accurately counted when received. The count must be written on the packing slip, date stamped and sent to accounting. Make sure you understand if you are paying from the date the delivery is received or the date the invoice is received. Clarify this before placing any order. Due to overruns or short shipping, only pay for what you receive (that's why you count each item).

5. All suppliers delivering bulk product, or product that needs to be placed inside a store, must be accompanied by a company employee. Do not give suppliers a key to a station and have the delivery driver unload the shipment unsupervised.

6. Make sure you and your staff understand if and when you will accept COD deliveries.

7. Retailers normally pay for the cost of the freight from the supplier to the park. FOB means Freight on Board and that FOB location means you will pay the freight to that listed location on the invoice. Be sure your Purchase Order reflects the agreed upon FOB destination.

8. Learn which methods of shipping merchandise is the cheapest for your park. Make a deal with one freight company that you will specify their freight line on every order, if they give you a special freight rate. You may discover that small shipments delivered by United Parcel Service might cost less than one truck delivery. In a park where I managed merchandise, we cut our freight costs by 8 percent annually by using UPS more often.

9. To eliminate extra billing paperwork, request that the supplier ship the goods prepaid and bill you for the freight costs. You'll still pay the freight, but it will be included on your bill and you will not be receiving a separate invoice from the freight company for the same order.

10. Since many factors can change within a 12 month time span, purchase products that would only last a year. Do not tie up your inventory capital for a long time. Your company's buying habits could change with management turnover or external changes. By keeping inventory low, you also keep the company cash more liquid. This is called "One Year Inventory" or "Seasonal Stock."

11. Do not accept back orders unless you place a cancel date on back-ordered goods. Otherwise your product may be arriving long after your peak selling season is over. Re-order what is missing from the original order. I automatically placed a "no back orders" tag on every P.O. written. This simplifies procedures for the warehouse crew.

12. Consider your warehouse space before placing any large order. Plan to have the necessary space to store what you purchase, and store it in an organized fashion, to be accessed quickly during restocking times.

Purchasing products for a new store, where no sales trend records exist, use the shotgun approach to purchasing. Buy small quantities of a variety of products until the customers, through sales, tell you which items they want to buy. Some other tips: local amusement parks, where the core market extends only 100 miles, will not sell many logo products. Destination parks will enjoy a higher percentage of souvenir products, which support a higher retail and lower cost of goods. Theme products, unique to your operation, can become a park signature item and allow greater mark-up margins. Blind items are those where the guest cannot calculate what the raw cost of the product could be; which allows you to mark up the item three or more times. Jewelry is an excellent "blind item."

Think about the negative impact of certain merchandise. Consider which items, if sold, could create a hazard in the park or injure guests. Such merchandise may sell well, but they are not worth the trouble they create. Gum and wax lips (or wax products), when dropped onto hot walkway pavement, creates an oily mess that guests can slip in and leaves oil spots for years. Toy swords have always been a good seller, but in the wrong environment can be a danger to guests. Same with toy spears, water guns, play whips or throwing toys. In today's society, many parks refuse to sell toy or squirt guns that look anything like a real gun. Merchandise departments should coordinate with the safety department to assure the park is not selling items that would allow unruly guests to harm others, annoy guests on rides, bother employees in the performance of their duties, create product or copyright infringements or cause problems for the security department.

The normal store will usually "keystone" or double the cost to establish a selling price. Due to rising overhead costs, sellers are taking the product cost and tripling that number to achieve a selling price. Study each item's retail price and determine if the item appears to offer good value at the price you have selected. Sales people can recommend a selling price, but the sales person will want you to price the product as low as possible so they enjoy repeat sales.

Use extreme caution in purchasing fad items. You cannot know when the trend will die.

When retailing name brand items (like genuine Poke'mon items), learn if your supplier is giving you the genuine article or a knock-off. Your guests should understand the exact product they are purchasing.

Guests do not buy souvenirs during the middle of their visit. On the way out of the park, down that "carnival midway," guests must pass that gauntlet of colors, lights, sights and smells of what we call "closing impulse sales." Be prepared for a rush at the end of the day. Borrow employees from other departments to assist with the rush of merchandise sales to departing guests. A lost sale now is lost forever.

Twelve of Allen F. Weitzel's 35 seasons in the amusement industry were spent as a Director of Merchandise in two different parks. For several years, Allen was, also, a merchandise salesman to the industry, where he became the "King of the Cold Call." Living in San Jose, California with his family, Allen, in his spare time, has written articles for FunWorld, Standardization News (ASTM) and THE LOOP.