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How to eliminate your aged inventory

David Brown by David Brown
September 3, 2009
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Reading Time: 6 minutes

One of the larger banes in the life of any retailer is the problem of old product – those items you thought were a good buy, but once in-store proved not to be the case. Sadly, it’s a reality of retail. Even the best buyers (despite what they might tell you) will only get 20-30% of their buying right. Aged inventory is as sure as the sun rising. The issue is, how do you deal with it? For every store there are only four options:

• Do nothing and wait for it to leave of its’ own accord
• Remake it
• Reduce it
• Exchange it

Most stores unfortunately spend too long exploring the first option. Despite the increased education and awareness amongst retailers today, it is still not unusual to find items on the shelves that are 10 years old or more (and the more is considerably longer than this!). Sadly, the true cost of waiting for this product to find a buyer is so high that it doesn’t bear considering. With finance, staffing and cleaning costs, an item will usually add an extra 44% to its cost by sitting around for 12 months. That means an item purchased last year for $100 has now effectively cost you $144 after 12 months of being in store. The odds of an item selling after you have had it for 40 days drops considerably to the point where it needs to be reviewed. We recommend at least looking at your inventory after 3-6 months to determine what needs to be done to make it sell. But holding it is certainly not an advisable option

Remaking it is a favoured option for many manufacturing retailers – and it is understandable given the pride involved in the design and the extra margin this can be perceived as bringing. Unfortunately this can often be a more costly exercise. The chances of picking a winning style is approximately 20% – regardless of how good you think you might be at it! If you remake an item that hasn’t sold into a new and unproven style, guess what your chances are of it becoming a good seller? Yes, it’s still 20% – and the bad news is you have just spent another couple of hundred dollars, not to mention time, in the remaking process. Unless you are remaking it into a style with a proven track record this is usually not a recommended alternative.

Reducing it can be effective. There are two approaches to this. Lower the price by a set amount each month until it sells. This way you can determine the market price. Sometimes it may even prove itself a good seller at a lower price that still gives you a good return. The other options are running an ongoing planned specials window and clearing product in a sale. These two can work hand in hand together during the year.

I would recommend that a storewide sale is done no more than once a year (smaller departmentalized promotions for short periods can also work) and that when it is done, it is done well. Most customers won’t get out of bed for anything under 20% off these days. Having a good old fashioned clearance will often mean you are selling the items to new customers and not spoiling your normal trading patterns. An organized process of eliminating inventory between sales is a must, but make sure you have a plan and a timeline for the items being specialled – you need to make sure you are quitting aged product, not good sellers, and that the items aren’t left reduced indefinitely. Short and sharp always works best.

The last option is one not fully explored by many retailers.
Exchanging product with vendors can be beneficial for you both. Why? Because the profit in any jewelry store is in the 20% of fast selling items that can be sold over and over. If you are carrying a slow seller that belongs to a vendor, then your money is tied up in that item when both you and the seller would benefit from it being invested in inventory that will move and regenerate fresh sales. Explore this option with your vendor, but you must be prepared to meet a few criteria:

  • Be willing to reorder items that sell quickly. It is in both your best interests to do so.
  • Don’t wait too long to ask. Most vendors will consider it if it is still part of their range. Asking two years later is not likely to see a favorable reply.
  • Make a commitment to the vendor. If you spread your buying around too much then you cannot expect your business to be significant enough for them to meet your needs. Concentrating on a few key vendors will be good business practice for both parties.

 

David Brown is President of Edge Retail Academy, a management company which works with jewelry retailers to increase their profit. If you need assistance in getting your fast selling inventory to work better for you contact David at davidb@retailedgeconsultants.com or visit the website at www.retailedgeacademy.com. If you need help with clearing aged inventory or general advice on running your jewelry store better contact: carol@edgeretailacademy.com, darci@edgeretailacademy.com, lynn@edgeretailacademy.com or mike_ druan@edgeretailacademy.com.

David Brown

David Brown

David Brown is the President of The Edge Retail Academy (sister company of The Edge), a jewelry business consulting company that provides expert advisory services to help with all facets of your business including improved financials, healthier inventory, sales growth, staff performance, retirement/succession planning - all custom-tailored to your store’s needs. By utilizing the power of The Edge, we analyze Key Performance Indicators that point to current challenges and future opportunities. Edge Pulse is the ideal add-on to better understand critical sales data and industry market trends to improve profitability. It benchmarks your store against 1200+ other Edge Users and ensures you stay on top of industry stats. 877-569-8657, ext. 001, Inquiries@EdgeRetailAcademy.com or www.EdgeRetailAcademy.com.

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