March 14/21, 2016; Volume 30, Number 19
By David Romano
Dear David:
I am struggling to move old inventory. Cash is tight and I have a lot of money tied up in those products. I have more than $500,000 of inventory that is over a year old. What can I do to get rid of this inventory quickly and not kill my margin?
Sincerely,
Compromised Owner
Dear Compromised Owner,
It looks like you are stuck between a rock and a hard place. Moving that much inventory quickly without taking a hit to your margin is difficult if not impossible. I will provide some best practices to move as much as possible but most of my focus will be for you to avoid getting into this mess again.
Short-term strategy
If you do a substantial amount of builder business one way to move the inventory is to offer obsolete product as an upgrade to any base-grade selections that are part of your running line stock. This will suspend the amount of new purchases of recurring stock and replace it with inventory you want to move. You will not get the retail margins you were hoping for but you are providing clients with a better product and earning some goodwill. And you are generating some cash.
You may also want to look at renting a big tent and setting it up in your parking lot to hold an inventory clearance sale. If you believe you don’t have enough inventory to make a real splash, talk to your local distributors and see if they can supplement your event with seconds/discontinued products that they too want to move.
Many distributors will allow you to return any unsold products for no restock fees.
Do not hire a liquidation company that promises big returns and little inconvenience. Many flooring retailers have been ripped off taking that route.
Long-term strategy framework
Let’s get the basics down on how an effective obsolescence plan should look for you.
- Determine the length of time you want to keep product before taking action. This can be based on turn-rate goals or a set number of days.
- Develop a method to track aging of products. This can mean dated inventory tags or a computerized inventory system.
- Design a system to monitor age. Determine how often you are going to review and how you are going to compare age against standard.
- Create a strategy to move unproductive products. This could include a markdown/
markup, placement and/or spiff strategy.
- Build a communication vehicle to let your staff know what needs to be moved, how it is to be moved and what they get in return for moving it.
- Follow up on how well your strategy is performing and make necessary modifications.
Long-term strategy
Once you get your inventory levels under control, pick 10 items in each category that you want to move. Track the performance of those 10 items; when you sell out of one or all of these items replace them to keep the mix to 10 items.
Let’s consider a category you want to turn four times per year. First, display the 10 products at the front of the store so people see them; don’t discount them. If after one month you still haven’t gotten rid of the inventory, spiff RSAs to sell it; keep the price the same.
If after another month the inventory still has not sold, discount it 10% and continue to spiff the sales associates. If it hasn’t sold after 30 more days, discount it 25%; continue to spiff RSAs. If 30 more unsuccessful days pass, discount product 50%, remove the spiff and move the display to a clearance area.