A Trade Magazine for New Age Retailers

Holiday Shopping: How to Budget and Purchase for the Holidays

With all the economists, retail experts and futurists talking about the 2018 holiday season being driven by AI (Artificial Intelligence), apps, digital integration and an omni-presence of stores (your e-commerce and physical store being linked), there is one outstanding prediction that bodes well for the brick and mortar retailer:


“Shoppers will return to Main Street in 2018. This trend is fueled by the desire of the highest-potential and highest-spending customers’ passion for a new shopping experience that they can’t find online, at the mall, in the national chains or in big box stores. Owners of small retail shops often feel overwhelmed by the rapidly changing retail environment, with competition on all sides and most especially from Amazon. But small business retailers have a competitive advantage that none of these bigger, better capitalized and techno-powered retailers have: their personal touch. It is realized not just through the personal service that specialty retailers offer, but by being vital members of the local community. This trend will reshape the retail landscape over the next decade.” – Pamela Danziger, president, Unity Marketing.


The generation coming to the age and lifecycle that has the most disposable income are the millennials. They are having babies later, buying houses later and they are focused on their quality of life and investing in the local market. Independent retailers are uniquely positioned to take full advantage of that continuing trend, to offer the personal touch and the “experience” in shopping that today’s buyer is looking for. This is the perfect time – if not a little late in the game – to plot and plan your holiday purchasing to fill your stores with those unique items that your customers will be looking for. Yet, how do you plan accurately, pick your product and get the money needed for this stock up? There are many options to get this going, some old school and some new ideas that are changing the way small retailers can leverage larger cash sources.


How much do you need on hand?

There is a sweet spot in your inventory level that increases or crashes your sales. Customers don’t spend in an understocked store and you run the risk of having too much unsold inventory at the end of the season when overstocked. When you get your sales goal for the season, the first thing you need to do is plan to purchase in the perfect stock level to make those sales happen again and maximize your profit. You can take a big fat guess, or you can calculate your sell through percentage. This is a percentage of inventory on-hand that is sold in a specific sales cycle. Most often, retailers look at their sales in 30-day and 90-day increments. The length of time for you to look at is dictated by your planning and smaller retailers tend to look at monthly sales.

Your sales-to-inventory ratio is simply your product sales (excluding discounts and returns) divided by the beginning retail value of your inventory. This tells you how much of your inventory you sell through in 30 days. When you compare what your sell-through percentage is in an average month, a great sales month and a low-inventory, slow sales month, you will find that perfect percentage for your store and then plan your holiday purchases accordingly.

We are going to do some math here. Don’t be afraid, it won’t hurt. To get your current sell-through percentage, you take your net sales for a month (sales only, do not include returns or discounts) and divide that by the beginning retail value of inventory on hand for that month plus any inventory added through the month. For instance, let’s say you had a $20,000 month in sales and you have a total $80,000 of inventory. $20,000 / $80,000 = .25 or 25%. Do this again for a time when your sales were really great!

Let’s say you had a $30,000 month and you estimate or run a report on what your inventory level was at that time and get a total of $92,000 (This is why a good POS system can help you grow your business). $30,000/ $87,000 = .34 or 34%. Do this again at a few times when you inventory was really low. For example, $15,000/ 73,000 = .20 or 20%. Do you see a pattern here?

When your inventory level was too low, your sell-through percentage went down. When you were stocked up, your sell-through percentage almost doubled. When you look for a pattern, you can start by making a few assumptions and guestimates. Start by getting a rough estimate then start tracking that month to month. Start somewhere, then you can look how much you need to increase your inventory to make the holiday sales you are anticipating. If you want to sell $100,000 between November 1 through December 31 and your ideal sell-through percentage is 40 percent, you will need to get your inventory level to $250,000 in that 60 days. Here is the formula: anticipated sales/ sell-through ratio (40% = .40) = ideal inventory level. It’s the start of your purchasing plan! You can quickly see how much you have in stock and how much you have to add. This is a solid and provable number you can measure through the season and adjust your ordering if the results start to change as the season progresses.


What are you gonna buy?

Before you execute that buying plan, know what you want to purchase. It’s kind of like making a list and having a snack before you go grocery shopping to avoid overfilling your cart with items that don’t make a meal. There is no one way to plan your holiday product plan, but anything you plot out is better than no planning at all. From creating a want list based on how much product you will need, to a complex spreadsheet with SKUs, turnover and cost of shelf space, any plan is a great place to start. As one of my business mentors always said, make it good, them make it better. After talking with a few retail store owners, here are some of their best practices:


1 Know what you are selling on the regular. Your best sellers can sneak up on you; they are not only the items you sell the most of, but the items that generate the most income.  These staples increase in sales just as fast as the gift items you think people are going to be looking for in “National Present Season” There are always surprise sellers when you dig in to your numbers and you would kick yourself if you ran out of them.


2 National and local trends. A little Googling goes a long way on looking for the season’s trends. Business Pinterest[1] has the top 100 buying trends for 2018. Healthy, crafted, unique and conscious are all continuing trends in 2018 (PS – every trend list for 2018 will mention socks and enamel pins).


3 Wishes and Wants. Have a list of the products on your wish list for your store and start planning their acquisition. Plot them out by theme and display and cluster your buying so their presentation makes sense. Plot them out by what you think you will need week to week through the season.

Keep a list of what your customers have been asking for and feed those items onto your sales floor for the holiday season.

Set your priority for your purchases on what your “must haves” are and what is new and unique to the shopping season. Get online and fill the carts and save your selections so when you are ready, you can just click the checkout button. Do whatever you need to keep it easy and simple to execute on the fly.

Order the holiday items first as they tend to sell out before Nov 1st and keep the inventory coming. Some retailers stock up entirely before Nov 15th and some plan for new items to arrive every week to keep their store fresh. It’s all a matter of preference and of course, how much money you have to spend.



Budgets need money

A few retailers start their holiday purchasing budget at the beginning of the year by squirreling away bits of cash all year long or buying and storing for the holiday season. That is wonderful!  That type of discipline is at the superhero level and it will take them far. This is an amazing business practice and often the average independent retailer is hard pressed to do that. Emergencies, improvements, and slow sales eat up that savings or straight-up stop you from saving in the first place. I asked around again on how other small and successful stores make their purchasing budgets happen. I am so impressed by the resourcefulness of my colleagues and I am excited to share with you new ideas I hadn’t heard of before.


Small Affordable Orders. My store is often running into the busy season right after my slowest season. It feels like I dropped off a financial cliff in the summer and then I have three weeks of good sales before the busiest season kicks in and I must climb up the financial cliff on the other side to get the products customers want to buy. When we don’t have the savings back up, we have to target small frequent orders as the sales come in. We fill virtual shopping carts with minimum orders and pull that trigger as soon as we have the cash and then fill that shopping cart with our next order. We place small net 30 orders with vendors who allow that, this way we know we can quickly pay them off and order again. We increase the value of those orders week by week as the sales grow. This incremental plan has saved our bacon for many holiday seasons as our store was launching or if we experienced an unexpected downturn in sales.

Credit cards, vendor credit, bank funded lines of credit are all traditional ways to get your seasonal inventory. In order of cost, vendor credit is cheapest and smaller in their credit limits. This is also a good way to get in a bit of cash-strapped trouble if you don’t plan for their timely payments. Fewer vendors are offering net terms and they are quick to cancel your credit if you are a chronic late payer.

Bank funded lines of credit usually have the best interest rate of any traditional credit.  There can be a long application process, business plans and a Q&A session with the loan officer.    If you are going this route, stop at your local SBA office for their assistance in prepping your business plan and getting the right bank contacts. An SBA guaranteed loan can have a lower interest rate and less documentation required.

Credit cards are the highest costs of all the traditional funding.  Even the no interest cards will jump up to 18% or more if you are late one time. If you go this route, watch your balances, cost of interest and payment dates carefully. Easy credit – low terms are never cheap, yet very convenient. One of my favorite techniques to keep my interest rate low and payments on time is to make the minimum payment weekly and boost the payment as my incoming cash increases. Weekly payments mess with their formulas and you win in the long run.


Leverage Your Merchant Accounts. Merchant Cash Advance is a new, easy, yet expensive funding source. PayPal, Intuit, Square and some merchant accounts offer this funding alternative. This is an advance on future credit card or PayPal transactions. You get a lump sum of capital that’s based on your ability to repay through taking a percentage of your daily credit card receivables. They base this solely on your annual transactions and don’t do a credit check and some of them will fund the next day.

A merchant cash advance is very expensive with APRs over 80 percent, so do your research before you buy. Intuit, Square and PayPal offer more affordable merchant cash advances for their merchants with upfront fees and no compound interest. If you have exhausted more affordable options and have no other source of capital, then a merchant cash advance may be the way to go. If you need cash now while you are acquiring other funding, this may be a way to bridge that money gap, just make sure there is no early pay off penalty.


Non-Traditional Funding Sources. There is a new focus on small business funding that I have never experienced. From Microfinance Organizations, to Peer2Peer lending, this puts more options in the business owner’s lap. There are a few to check out and Google on your own to dig up more details than I can include in this article. This short-term working capital loan could be just the thing to stock your shelves and create an amazing, high-profit holiday season.


Microfinance Organizations. According to Investopedia, “Microfinance, also called ‘microcredit,’ is a type of banking service that is provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services.”


Microlending. is a crowdfunded loan that you help generate the funds for. Unlike Indigogo, and Kickstarter where you are asking for people to pre-buy or just straight up donate, microlending is a loan that is managed by a nonprofit that will repay your lenders for you. The lender then has the option to pull the money back out or loan it again. The great thing about a microloan is that your network of lenders can lend you what they can afford; as little as $25 or as much as the entire loan.

You may be familiar with Kiva or Accion as microlenders. There is an application and underwriting process to get your loan approved before it is open for lending on the website.  Once it is up, you will need to  promote your loan requests through your social networks. It’s amazing how fast $5, $10 or $20 dollars add up to your entire loan amount. Microfinance organizations are usually non-profits with the mission to get financing to businesses that are underserved by the banking institutions and that have an impact upon the local economy.


Peer2Peer Lending. This is like crowdsourced microlending as this is a new methods of debt financing that allows people to borrow and lend money without a financial institution. This too is unlike microlending, as the Peer2Peer lenders have investors that make up the pool of money to lend rather than choosing a specific loan to finance and they are for-profit corporations. According to Marc Prosser from the Huffington post, “Peer2Peer lenders such as Lending Club connect borrowers and lenders in an online marketplace. Borrowers like it because they can bypass the bank and ‘talk’ directly to individual investors.”

The application process is similar to applying for a traditional loan, yet are not solely rated on your credit score. The business loans can range from $5,000 to $300,000 on a one- to five-year term. Again, before you take the money, check the interest rate because they can go as high as 30% APR. Lending Club is the largest Peer2Peer lender. Kabbage is really amping up their marketing and you may have already gotten a letter from them. They have a rapid approval system they claim is only 10 minutes. Business News Daily shows their top five picks to Peer2Peer lending as Nobel Funding, Kabbage, SBG Funding, Rapid Advance, and On Deck.


Development Money in Your Community. Community-development financial institutions (CDFIs) are mission-based lenders. They focus on underserves communities and offer financial and strategic support, particularly to women, minorities, and veterans. A CDFI can be a bank, credit union, loan fund, or venture capital fund. Some  CDFIs provide workforce training and assistance as entrepreneurs work to launch their enterprises as part of the lending package. In Detroit, we have the Detroit Development Fund and Invest Detroit. These CDFIs are funded by national banks and foundations to promote business growth in the city and surrounding suburbs. Many communities have such funds and resources and many of them can be found in your local SBA office. Get your Google going and look up CDFIs in your area .


Put it All Together and Create an Amazing Sales Season. With the expected brick and mortar retail growth of 5 percent, the growth of independent retailer sales and the need everyone will have for some relief and comfort from the growing stress in society, you can be perfectly positioned to make this the best-selling season ever. Start with your goal, make a budget, figure out your product mix, and finance your idea! You’ve got this! You bet on yourself and you will beat all the odds!

[1] https://business.pinterest.com/en/blog/100-trend-predictions-for-2018_

Jacki Smith
Author: Jacki Smith

Jacki Smith is the co-owner of Coventry Creations. Her passion for personal empowerment and small business has been the driving force in her success and her journey of lifelong learning. Jacki is a regular contributor to the magazine and loves sharing her experience, successes and cautionary tales.