The Science of Buying: The 80/20 Rule

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The Science of Buying: The 80/20 Rule

By Robert Coviello - 06/01/2010

I’ve heard the following quote more times than I can remember over the past 12 years from people who think they want to enter the retail world of kitchenware. “I decided when I woke up this morning that I’d had enough of the corporate world. I have some money to invest. I love to cook. I am rather good at it. I am going to open a retail kitchenware store. Why can’t I be an entrepreneur and make some real money?”

Well, the fact is a number of people do it every year. However, of those who take the leap to open a retail kitchenware store, 50 percent go out of business in less than 18 months and 50 percent of the remaining retail kitchenware stores will go out of business in the next 12 months. Why is that the case? Passion. Yes, passion!

Passion is not a reason to open a business. Lots of research, a solid business plan and an understanding of how to operate a business are what you need to be successful. I am going to assume your passion is contained, that you have done your research and you have completed a solid business plan. If you have those things, we can start with the 80/20 Rule.

This rule is the first of six facets of owning and operating a kitchenware retail store that you need to understand if you want to be a successful retail kitchenware store entrepreneur.

What is the 80/20 Rule? It seems pretty simple — 80 percent of all your sales will come from 20 percent of your product assortment. But, without the other 80 percent, the 20 percent cannot occur. The first thing this should tell you is not to ask every vendor what his top 10 sellers are, because if that is all you carry, you can plan on being amongst those who fail.

Managing the 80/20 Rule
To manage the 80/20 Rule, you need to do three things:

  1. Learn to respect the rule
  2. Learn its analytical value
  3. And learn how to manipulate it in your favor

To respect the rule, you must remember there are components to every assortment. When these components are combined, they create the theater of products needed to wow your customer; and when you can wow your customer, your recipe for success is beginning to cook. This means that the classifications you have chosen to feature and their components are blending together. Buy branded products and buy quality products in all price points, because today’s customers expect it, and they have the disposable income to demand it.

To learn the rule’s analytical value means you must monitor your sales by product classification. There are two divisions under which all product classifications fall: the first is Housewares and the second is Tabletop. While there are no industry standards for these divisions or classifications, here are a few suggestions on the easy ones. Bakeware, Chef’s Tools (this title has more panache than Gadgets), Cookware and Cutlery are four of up to six dominant classifications you must have in your assortment. Within those classifications, the mix should constitute offerings of various product materials, a range of price points and a good, better, best assortment, or at a minimum, a better, best assortment. Multiple lines manufactured from the same materials will feed off each other and generate additional sales. One brand or product line in each group will always be the star performer, but the star’s performance is enhanced by the complementary products playing the supporting role.

Dominant Classifications
How many lines should you have in each classification? It’s really a matter of space. How much total square footage do you have in your store? A store is likely to be more financially successful if it is at least 3,500 square feet up to a maximum of 5,000 square feet, inclusive of selling and storage, total GLA (gross leasable area). A smaller store means smaller assortments, less sales, less net income, less owner’s draw/salary and possibly less chance of success, depending on the competitive forces in your marketplace. A good manufacturer’s sales representative who understands how to consider future sales and not just today’s orders will likely assist you in this learning process of lines to buy. He will not tell you that you don’t need “anyone else but me.”

Once the dominant classifications of the assortment have been formalized, it’s time to look at the opportunistic merchandise that needs to be added like Barware, Cleaning Products and Supplies, Cutting Boards and Blocks, Gourmet Foods, Glassware, Kitchen Electrics, Kitchen Textiles, Shakers and Mills, Storage, and Woodenware. And, to the later list, a Tabletop Division of classifications may be needed to add to the recipe for success. These classifications include Dinnerware, Flatware, Glass Giftware, Linens, Decorative Accessories, Pottery, Serving and Buffet Accessories, and Tabletop Accessories. A store cannot be dominant in any one of these classifications. All of the assortments must be purchased as opportunistic assortments that complement dominant assortments and add to the wow factor.

Monitoring Performance
Once the store’s assortment has been put together and placed on the floor for sale, it’s time to carefully monitor performance — or how the flavors of the ingredients are melding together in the pot. If it has been stirred and mixed properly, you will be able to present or “plate” your recipe in a manner that is appealing to your customers. Classifications will have their own home on the selling floor subdivided by vendor and materials, and perhaps even to some degree by price point. Some of the selected products will lend themselves to theme presentations, stories, acts within the play — like Italian, Asian, Tex-Mex, Ice Cream, BBQ, Emeril and Batali. Much of the assortment may be cross-merchandised with other products to suggest silently, merely by its placement in the store, an add-on sale to the customer.

Now you must listen to the customers, track what sells by classification, monitor the best-selling presentations, tweak the weaker performers, replace fast-moving merchandise quickly, watch and learn how different classifications sell, and how quickly their inventory turns. Do not make any knee-jerk adjustments because the dinner guests (customers) will take a year to tell you what they want through their purchases. Plus, the store will need some classification comparative data in order to make sound judgments on what needs to be changed to improve on the already great job you have done.

One final point if you are serious about this venture: consider seeking professional advice from a person who has experience in the industry. Why should you do that? So that your passion does not get in the way of clear thinking.

Robert F. Coviello is the founder and president of HTI Buying Group, an organization of independent housewares specialty store retailers and industry vendors. He is also president of Housewares Tabletop International, a consulting firm that provides innovative solutions to strategic challenges facing companies in today’s dynamic housewares and tabletop industries. Bob has more than 35 years of experience in the industry and is an acknowledged industry expert in the housewares field. If you would like to comment or send us your feedback, please send e-mail to [email protected] or [email protected].