June 4, 2015
It caught your eye at the trade show and you placed a good sized order for your store. Now, eight months later great item is gathering dust on your shelf. It not as eye catching as you once thought. How do you unload the dogs in your inventory? More importantly, how many non-sellers can your store support before it becomes a serious issue for your bottom-line?
Retail consultant Tom Shay has spent his career advising retailers on the importance of smart inventory management. His ideas have restored profitability for hundreds of retailers and saved them thousands of dollars. Recently, Tom shared his thoughts on this important topic.
MSA: How does an operator measure the impact of non-moving merchandise on profitability and at what point does it become serious?
Shay: Before I could accurately assess the impact of non-moving merchandise, I would want to first look at the inventory turn rate over the past couple of years. A downward trend indicates there is an increasing amount of dead inventory. Using the ROI calculator from the Profits Plus website, you can easily see what a difference a higher turn rate makes for a store.
MSA: What steps can a operator take to keep dogs out of the inventory?
Shay: Consider changing the buying philosophy from ‘never running out’ to ‘make the money and move to something else’. Use multiple smaller orders instead of one large order. This allows you to make changes as the season progresses.
MSA: Explain why the cost of old inventory increases over time.
Shay: All inventory is expensive. When you place an order and get 30 days to pay for it, you are using the vendor’s money – if you sell the inventory within 30 days. However, once the inventory is paid for, the inventory represents your money sitting on the shelf. And money sitting is like the interest rate on a loan.
MSA: How long should a product remain on the sales floor before a store operator takes more aggressive actions to get it sold?
Shay: Everyone has their own thoughts. I like the idea that at six months, the inventory needs to be gone.
MSA: Other than a sale what do you suggest an operator do to move old merchandise?
Shay: Definitely do not create a ‘clearance corner’. This only attracts price shoppers and diverts their dollars from inventory that is at full margin. When you have a sale to clear inventory, make it for a short period of time and make the markdowns deep. Clearing old inventory is not about getting as much as you can for the item; instead it is about freeing up space on the shelf and putting some of the money back to work.
MSA: What advice do you have for operators who find they didn’t buy a large enough quantity a good selling item?
Shay: You have to first decide if you want to try to sell more by reordering. You may find that with a reorder, you could end up with excess merchandise. Then you have a situation where a clearance sale could cut into your overall profits. Of course, this is your job as a buyer; monitor the sales, know the minimum order quantities, and the time factor for getting a replenishment order.
MSA: Anything else you would say about non-selling merchandise – those dog in the inventory?
Shay: Inventory control is both an art and a science. Good buyers don’t just happen; they are students of inventory turn, seasonality of sales, and the factors we mentioned above.
On June 10, 2015, Shay will share more of his ideas on inventory management in his MSA webinar, “How Much is that Doggy in the Showroom?” Tom is a proud fourth generation small business owner, celebrated author, columnist, coach and speaker. Through his company, Profits Plus, Tom strives to help small businesses grow their profits by zeroing in on those issues that have the greatest potential for improving the operation and bottom line profits. You can Tom on Facebook and LinkedIn. Follow him on Twitter @ftomshay.