If you’re in retail, then you know all too well how critical inventory is to the success of your business. You definitely need to have sufficient inventory to be profitable. But, on the other hand, having too much inventory can be a larger problem than too little inventory. (By excessive inventory, I don’t mean an extra amount of fast-moving products that are likely to sell in a month or two. What I’m talking about here are those slow-moving items sitting on the top shelf for months on end just taking up space and refusing to budge.)
You must remember that inventory can only do one of two things: (1) make you money, or (2) cost you money. If it’s making you money, then great! If it’s costing you money, then get rid of it, even at a loss.
“What?” I can see the look on your face right now. “Are you crazy? I’m not going to give my inventory away,” you say quite sternly.
Why not? If you have inventory that’s not selling, it’s just taking up space (and much-needed cash) that could be used for more profitable items.
The key is to find the right price to move your slow merchandise. For example, let’s assume your retail price is double your cost. In this example, you pay $100 and it retails for $200. If it is a slow mover or a discontinued item, what should be the new price? I would take 20% off for 1 or 2 months. If it’s still on the shelf after that, then take 50% off.
Oh, I can hear you yelling now. “Like I said before, I’m not giving away my inventory!” Well, then, you are looking at your inventory from the wrong perspective. Your product is only worth what a customer will pay for it.
Using our example, let’s say you ended up having to sell your product at 50% off. Most business owners, when asked how much profit they generated from the deal, would say they ended up with a big fat zero.
Well, that answer is only partially right. The more correct answer is that you gained $100.
What you did was take an item that was producing absolutely nothing and turn it into $100 cash and available space. You can now use that cash and space for products that actually make a profit. And even if you had to go as far as selling it at a 75% discount, you’d still gain $50!
Even if you’re the smartest business owner in the world, there will be times when the stuff you buy just won’t sell. Customers can be fickle sometimes, jumping from one fad to the next. The key is to quickly identify slow-moving or discontinued products and take care of them before they tie up too much cash, space, and profit.
