Now is a good time to overhaul those items that have been sitting gathering dust since the end of last year and also revisit your inventory with a view towards the coming December trading period.
For many store owners the inventory buying process can consist of either foot on the accelerator or brake flat to the floor! This binge or purge mentality can create a yo-yo effect in inventory levels. In reality at any point in time your inventory levels can be doing one of three things:
In many cases the direction your inventory is moving in is not a conscious decision based on a plan, but a haphazard arrangement based on the buying opportunities that are presented to you (supplier visits and trade shows being foremost among them).
Rather than leaving it to chance, it’s important to adopt a five step process to making sure you know the inventory you need and how you will handle it when it arrives in. The plan should look like this:
- Planning. This can consist of setting your budget and sales plan for the year. This is the most important stage and should take the biggest part of your buying time.
- Buying Effectively. With a clear plan in place the time spent buying is considerably reduced. You can now focus in on the product that will best meet the plan.
- Launching Back in Store. Once purchased, how will you introduce this product to your customers and, just as important, your staff?
- What do you do if it sells? Many store owners take the approach that once the sale has been done the party is over. In reality the show has just begun! Fast sellers are the bedrock of your business. 10% of your items are probably contributing 75% of your sales – it’s the old 80/20 rule to extremes!
- What do you do if it doesn’t sell? Most store owners underestimate the impact that old inventory can have on their business. If you are getting a ROI of 100% on product then the product that isn’t selling is costing you 100% interest per annum. If you are getting 135 ROI then it’s costing you 135% interest.
Old items can cost you 20% extra per annum in freight, cleaning costs, insurance, finance costs, wages, rent and additional costs. Add on the opportunity cost of investing the money into something else that would have sold and keeping those slow inventory items can be costing you in excess of 100% of its cost on an annual basis.
You need to keep that old product moving. There are seven key steps to making this happen:
- Identify the product you want/need to clear now! Set clear targets and time frames for when it should be moved on. This needs to be followed up with regular reviews. A set and forget will not work in this area.
- Re-price it to today’s realistic selling price. This may need a reduction or conversely you may need to increase it to the current replacement cost. This may seem counter-intuitive if it doesn’t sell already, but will give you room to move on price if you are reducing it.
- Clean, re-ticket & re-box product as required. Sometimes a freshen up is needed to get it moving again.
- Discuss strategies with your sales team – every day! Select two or three items for your morning meeting and let the staff know they haven’t been moving. Ask them why they feel they haven’t sold.
- Implement incentives. Once discussed, could you be incentivizing the piece to get it moving?
- Do your homework, i.e. companion sales, location of stock in store. These factors can all have an impact on the ability of the product to move.
- Appoint an ‘Old Stock’ ambassador. Who is responsible for this area? Sometimes a staff member can be better at following up on these tasks regularly than you are. The movement of old product warrants a dedicated staff member – there is a lot of money at stake!
If you want to improve your stockturn there are a number of strategies that can help:
- Replenish your fast sellers – fast.
- Return it, Remake it, Sell it or Scrap it.
- Know your optimum stock level and work an Open to Buy budget
- Follow the plan
- Monitor new items that aren’t selling after 40 days
- Improve your staff sales skills
Managing your inventory is not a passive task, but as we’ve outlined above there are plenty of options available.
David Brown is President of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. For further information about the Academy’s management mentoring and industry benchmarking reports contact email@example.com or call 877-569-8657.