Saturday, 6 October 2012

Inventory Renovations

Staffers, you can skip this one: this is for owners/managers.  I might be preaching to the choir on this one, but for some this information will be new.  I’ve got a unique perspective.  I’ve owned a store, I’ve managed a store, I’ve been through ARMS management training, I’ve sold to ARMS retailers and I’ve sold to methodical and fly-by-the-seat-of-your-pants retailers. 

When it is discovered that inventory is getting dated, it takes a long time to remediate that problem.  An advisor like ARMS would suggest that a healthy store has a significant and growing percentage of their inventory that are “fast-sellers” (ones which have already proven to turn-over in your store at a 2.5X turn).  What do you do when a small percentage falls into that category and a large percentage is beyond a year or two old?

Based upon retailers who I’ve witnessed renovate their inventory to healthier levels, it really boils down to three practices.  Reorder fast-sellers religiously, make every effort to clear-out old skus, and third, use your open-to-buy to acquire more potential fast-sellers.

If you wait until the rep makes their semi-annual trip to reorder fast-sellers, you might be losing as much as a full turn on fast-selling merchandise.  I know you don’t want to incur shipping expenses on a single small item, so create a minimum order policy and stick to it, every week, two weeks or month.

Some retailers are hesitant to have a clearance sale; lest they cheapen the image of their store.  Nothing damages your stores’ image as much as failing to provide fresh new merchandise to tempt your frequent visitors.  In order to freshen your offerings without clearing-out the old, your inventory needs to rise; which can only decrease your ROI.  When you run a clearance sale, put genuinely huge discounts on really old merchandise for 3 days or a week or during your clearance month, and then stop and return to your normal business practices.  Discipline your market-place to know that when you have a sale, they should respond; lest they miss-out.  Do this once or twice per year until some of those old numbers go away.

Every time you sell an item that is older than your own personal threshold for a “fast-seller”, the cost of that item becomes available as an “open to buy” for new potential fast-sellers.  Let’s say one month you sell $35,000 at cost, and $25,000 of that came from fast-sellers.  You should automatically and immediately replace those skus.  With the $10,000 worth of stale-dated merchandise you sold, you can either spend the $10,000 on new numbers or if you want to reduce your overall inventory levels, you set-aside $6,000 or $8,000 as your “open to buy;” thus reducing your inventory by $2-4,000.

I hope this helps those of you who have never understood inventory flow in this way.  If you want to discuss this at greater length, let’s have a coffee next time I’m in your area.  I love to talk about our fantastic industry!

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