In last week’s column, we talked about Open to Buy, or planning the right amount of inventory to buy at the right time. If we have planned correctly, there would be no need to mark down or discount merchandise. However, that is not the real world. In this week’s article, I want to have a heart to heart about inventory. Remember our article about GMROI, in which we told you that your inventory should be working as hard as you. So this week, I want to talk about those items that are like your lazy relatives. They show up at your door, eat your food, and just never seem to want to leave. And like those lazy relatives, slow moving merchandise will hang on taking up space until you show them the door.
Keep in mind that inventory are dollars sitting on the shelf and like those relatives, they take resources (rent, utilities, insurance) that could being used more productively. Last year, we were asked to help a retailer take a physical inventory. As we went through the store, we opened plastic bins upon bin full of sweaters. As we scanned the bar codes, I couldn’t help but notice that some of the tags were yellow. I asked the clerk how long that they had these sweaters and they indicated at least 3 seasons or 3 maybe 4 years. This was a high end boutique with the sweaters marked at several hundreds dollars each. Each bin represented a few thousand dollars in purchases. Think about that for a minute. The first year, product was bought, tagged, hung, taken off of the hanger and put in the bin. The next year, back out of the bin, steamed, hung on the hanger, etc. By the time the 3rd year came around, the labor and storage alone meant that even if they had sold the product at full price, they were still losing money. However the owner was convinced that they would sell eventually, kind of like hoping that your relative would get that job and move out.
A good rule of thumb is NEVER, EVER let your inventory celebrate a birthday (Ok, there are a few exceptions like tree farms, but keep in mind the bigger the tree, the more they sell for) in next week’s article, we will talk about holding sales, or how to get rid of that free loading family member.