(This story appears in the May-June issue of Marijuana Business Magazine.)
The cannabis products lining your shelves might make or break the reputation of your marijuana retail store. Whether or not they sell could make or break your company’s bank account.
Available inventory and exact ordering methods vary widely from store to store. Some marijuana retailers source their products from dozens of suppliers, while others might be limited to a single wholesaler or supply their own stock.
Still, marijuana retailers can find success with an organized approach that incorporates both quantitative data and qualitative feedback, combined with some basic precautions to avoid getting stuck with unsellable inventory.
Driving decisions with data
“My job is mostly data,” said Unity Whittaker, director of offerings at the Village Bloomery in Vancouver, British Columbia. The independent retailer values small cannabis producers and tries to fill its shelves with sustainable products.
“I’m looking at spreadsheets and analytics most of the time,” she said. “It’s not a very sexy job, but it’s so interesting.”
Whittaker starts her day by analyzing sales statistics from the store’s point-of-sale system, Cova, as well as cannabis data platforms Headset and BDS Analytics to determine which products are selling well and merit reordering.
Whittaker said it can be disappointing when products from craft producers don’t sell, but she has to follow customer demand. “We’re a small business, we have to survive. So we always have to carry things that sell.”
Larger retail chains might be able to rely on their own analytics software for inventory management. At Fire & Flower, a major Canadian dispensary chain with around 80 locations, Vice President of Merchandising Rob Cherry and his team use the company’s Hifyre analytics platform to get the job done.
“We have a lot of insight into our customers and their buying patterns, mapped to actual point-of-sale data telling us what the top sellers are by week in terms of gross sales, in terms of net margin contribution, in terms of inventory sell-through. We look at those data points to identify opportunities to either increase our SKU (stock-keeping unit) count or increase the depth of our inventory in those SKUs or bring in newness,” Cherry explained.
“Conversely, we’ll see the data and we’ll say, ‘OK, this category is trending down. We’re going to back off a little bit. We’re going to put those inventory dollars elsewhere.’”
Inventory managers don’t necessarily have to use advanced analytics software to do their job—a do-it-yourself approach can also work for those with technical and statistical skills.
At March and Ash, a marijuana retail chain with four Southern California locations, Inventory Manager Jill Regan takes information from the stores’ point-of-sale system and feeds it into her own spreadsheets to drive inventory decisions.
“We’ve taken a pretty basic sales report and then used that to create our own tools to not only manage inventory but also make sure that we’re keeping the products that sell well in stock,” Regan said.
Incorporating anecdotal feedback
“It’s not just sales reports,” Regan added. “It’s also customer feedback that’s going to dictate what brands we carry and what brands we don’t.”
Regan collects that feedback from multiple channels such as customers who call to ask whether a product is back in stock or feedback from store managers about products that are in demand.
At the Village Bloomery in Vancouver, Whittaker takes a similar approach by keeping an open dialogue with store staff. That helps her provide what customers want, even when the product doesn’t quite fit the store’s independent ethos.
“It’s not just us making the decisions, it’s our customers,” she said. “We definitely listen to what our customers ask for. We will bring things in—even though it’s maybe not something that we like—we will bring it in because people want it.”
For example, Whittaker said the Village Bloomery consistently carries 1-gram packages of DNA Genetics Chocolate Fondue flower. The brand is produced in Canada by Canopy Growth. It’s not exactly a mom-and-pop offering, but it’s still a top seller.
Whittaker also takes time to sample the cannabis products herself and even posts product “unboxing” videos on YouTube.
“Get on all the social media channels—get on Reddit, get on Twitter, get on Instagram, YouTube, Clubhouse, everything you can—to hear what people are saying about cannabis,” she advised.
At Fire & Flower’s much larger store network, Cherry and his team rely on documented conversations with staff, including regional managers, store managers and in-store educators to inform their inventory picks.
That information is sorted into a spreadsheet for analysis, with the purchasing team providing feedback to district managers.
“I think it’s critical to listen to all different types of feedback and data points, because that paints a holistic picture. Then, it’s that holistic picture that we execute on,” he said.
Cherry likens merchandising to a language. “You can teach it, but ultimately, you have to practice it in order to truly understand it,” he said.
Hedging your inventory bets
With so much data to interpret and so many products on the market, not every inventory choice will be a winner.
Simply ordering less is one obvious way to hedge your bets: At March and Ash, Regan said a new, unproven cannabis flower product might warrant an order as small as 32 units.
“It also depends on the price of flower. We have some really top-shelf flower that’s pretty expensive, and we’re obviously not going to carry hundreds of eighths at a time,” she said. “We also have budget flower that’s a lot less expensive for us and for the customer, so we’re going to carry quite a bit more.”
Fire & Flower’s Cherry advises considering an “exit strategy” when making inventory choices to ensure you can offload underperforming products while keeping a reasonable profit margin. Without such a strategy, a great deal of cash flow can get tied up in inventory, he said.
An exit strategy could be as simple as assigning uncertain products a higher profit margin at first to leave room for future markdowns, if needed.
“It can be the thing that sets your company apart when you’ve got great inventory and it’s turning quickly,” he said. “It can also be the death of certain companies that are not being proactive enough in marking down and cleaning out their inventory.”
Cherry is fond of reminding his buyers: “Constantly weed your garden.”
“Markdowns aren’t something you look at every three months,” he said. “Markdowns are something you look at every week. And by constantly doing that, you’re not letting these problems fester—you’re addressing them head-on when they happen.”
Consistently underperforming or deficient products might merit a difficult conversation with the supplier.
“If we’re consistently seeing issues from the customer side, we’re probably going to try to address it with the vendor first and see what’s going on,” March and Ash’s Regan said.
“And if they don’t have a viable explanation for it, or improvements in that product, we’re probably going to end the relationship.