I was talking with someone the other day whose stores had a ridiculous excess of inventory. Not having seen the operation, I can’t speculate about how over-inventoried they are. But my sense is that they’re over-assorted and over-inventoried.
So many retailers find themselves in this situation because they buy what they want to buy. And they keep buying, without ever clearing out what they have.
I worked for a ski store when I was in college, and they held onto every last piece of merchandise, trying to sell it. Each year during the pre-season and post-season sale, we’d haul boxes of old clothing out, trying to get whatever we could for it. The clothing and accessories were so out of date, tattered and dirty from being handled, packed, unpacked, repacked, dropped, etc. that there was no way the merchandise was ever going to be sold. The owners should have just taken the write-off and given the stuff to Goodwill.
At same point, you have to go through the inventory reduction process:
1. Review your sales reports and realize that specific brands or products aren’t selling
2. Take the first markdown on the merchandise, say 20-25%%, sell some of it
3. Take the second markdown to 40%, sell some more of it
4. Take the third markdown to 50%, sell some more of it
5. Take the fourth and final markdown to 60-75%, sell some more of it
6. Take the write off and get rid of it
There’s no formal markdown strategy that works all the time. You can play with any number of markdown phases at any number of percentages. You have to figure out what works for your particular business. The key is to actually get rid of the merchandise and free up working capital.
Thrown in an employee sale with deep discounts, host a friends and family sale. If you have multiple locations, create a warehouse sale and direct people to your warehouse. You can create a number of different initiatives outside of your regular retail operation to move merchandise.
Remember, once the merchandise is in your hands, it’s paid for. You own it. And it’s sitting on your books. It doesn’t do any good to be sitting there for a year, or two, or three. If it’s not selling, move it out to free up working capital so you can bring in other merchandise that will sell.
How are you clearing your excess merchandise?
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