To the uninitiated there would seem to be little correlation between the age of your product and the margin you achieve. Yet as business owners we all know that the older our selection becomes the more pressure on our margin to get rid of it.
Dealing with old inventory is a little like weeding the garden. You spend hours/days on it to get it under control, get distracted by something else and before you know it there are weeds (read old product) issues all over again.
The secret is to be working on it continuously, not spasmodically when your cash flow demands you do so. It would not be unusual for core old stock/inventory (over 12 months old) to be between 40% and 80% of a store’s stockholding. Taking a conservative figure of 50%, that represents a significant portion of your inventory range that is getting pricing pressure put on it.
Is the number large enough to get your attention? Would it put a spring in your step if a significant amount of that money was sitting in your bank account rather than on your shelves? If I said I’ll give you 80 cents on the dollar at cost would you grab the offer with both hands? (Sorry that wasn’t an actual offer!)
So you agree you would do something, it’s just how much you will accept. The main question is do you have an aged inventory management process? Here are some tips on what it involves, not in any order of priority:
- Does your staff have weekly/monthly targets for old stock sales?
- Does your staff have a half dozen ‘go to’ pieces of old stock that they introduce as mix & match with other items?
- Do you rotate “Special” priced pieces in and out of your windows and cabinets?
- Do you have annual or bi-annual sales events?
- Do you incentivize your staff with bonuses or spiffs if they sell old stock?
- Do you have a ‘spend $XX on brand YY and select a discontinued item at half price’?
If you didn’t say yes to all the above I don’t believe you have an aged inventory management process in place. So what are you planning to implement to make sure a process is put in place?
Your store doesn’t need to look like it’s in permanent clearance mode. Mixing and managing activities properly will not give it this appearance. The key is – nothing changes if nothing is done.
If you receive Key Performance Indicator (KPI) reports you should be looking at the three year comparison for the average store and for your store. It may be easy to say (and see) that the markup % have declined. If this was happening for the average store in your group pool some people may say “that’s what’s happening in the marketplace, so that makes my numbers acceptable.”
Yet within the average store information, there will be stores that are making significant inroads into clearing their old stock. As an example, in one case I know that 39% of a store’s sales in the last 12 months were old stock with an obvious (and expected) reduction in their markup % achieved. However in their case it was a deliberate strategy to reduce old stock and free up capital.
Before you accept the fact that your markup % is declining (like other stores around you), you need to get the real story behind your numbers. Print out a sales summary of the last 12 months and see what markup %s are for fast/fastsellers (generally turnover in less than 3 months), fastsellers and old stock. Has the ‘Discount Syndrome’ spilled across all stock regardless of its saleability?
- What percentage (and dollar value) of discount is being given on fast/fastsellers?
- What percentage (and dollar value) of discount is being given on fastsellers?
- What percentage (and dollar value) of discount is being given on old stock?
More discounting does not automatically produce greater volumes of sales. If your results are not part of a planned strategy, you need to address the issue urgently.
In the case of fast/fastsellers and fastsellers you are giving away precious profit that is the lifeblood of your business. You are also educating your customers and your staff that rampant discounting is acceptable in all aspects of your business, not just those areas that you need to move on.
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.