Are your inventory dollars working as hard as you are? Inventory management is more important than ever in these challenging economic times. Few retailers can afford to have their open-to-buy funds, often borrowed at a high interest rate, tied up in idle inventory. 

 The key to making sure that your inventory is turning regularly is to track how long it’s been on your shelf.  One way to do this is by using your POS or your price gun labels to code every item with an arrival date.  In order to have this system work well, you need to make sure that your oldest inventory is put on the shelf first. That’s what is meant by LIFO: last in, first out.  LIFO’s evil twin sister is FIFO, first in, first out, which means you’ve succumbed to the temptation to put the newest, most exciting merchandise out while the old stock sits in the stockroom getting….older.

 If you can see that an item is not selling, don’t put it away to make room for something different.  Mark it down or give it away.  You can’t let inventory become family, as one wise retailer said, even if you’re sure that the right customer for it will be coming in any second now.

 There are three ways that it costs you money to keep slow-moving stock on hand.  The first is the lost opportunity cost, which means that you could have used those same inventory dollars to buy something that will sell faster.  And there is the cost of the shelf space that the slow-moving item is taking up , for example in rent and utilities.  And of course the item itself may be declining in value if it gets faded or shopworn.

 Rod Stewart’s popular song says “The first cut is the deepest,” but he is talking about love, not markdowns.  Your first price cut should come as soon as you recognize that the merchandise is not selling as fast as its neighbors.  Start with a “shallow” markdown of 15% or 20% off, and also try moving the merchandise to a different part of the store or combining it with other products that give it a boost. 

 If these strategies don’t work, you need to take a deeper markdown, and if this is not successful you may need to donate the merchandise to a local charity.  Take comfort in the fact that no shopkeeper makes perfect decisions all the time.  Even after 33 years, we still make mistakes. We’re just grateful that we can sell ours off at a discount, and get our dollars back out working hard for us again.

 

Happy Retailing,

Carol “Orange” Schroeder

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