Article by Frank Lucer
Overstock situations rarely happen overnight. They occur gradually and build month by month. The problem is, the slow buildup makes them difficult to identify and resolve. Small retailers often fail to notice that they’re carrying dead inventory until the problem has spiraled out of control. By that time, if cash flow is an issue, they’re forced to take costly markdowns. If they’re desperate, they may even need to unload their stock to liquidators for pennies on the dollar.
Below, I’ll provide a few helpful suggestions for dealing with dead inventory and turning it into valuable cash flow (without turning to liquidators). While the solutions may not be quick or painless, they are effective.
Ask Your Vendors If They’ll Accept Returns
Vendors are understandably loathe to take returns. However, if you position your request properly, they’ll be far more open to the idea. First, you should make it clear that returning excess stock will not become your new method of operation. Second, think of ways to frame your request to make it more appealing for your vendors. For example, you might agree to give them more shelf space on your floor, or to try out a new product line they have been pushing.
You should also remind them that a severe cash flow problem on your end could impact future purchase orders. In effect, accepting returns from you can help insulate their own businesses.
Categorize Your Excess Merchandise
Despite what many independent shop owners think, overstock is not always the result of items turning over slowly. The problem is often with inventory overages that go unnoticed month after month. Those overages can occur in any category, including those which sell quickly as well as those which seem to stubbornly stick to the shelves. You can generate cash flow by segmenting the overstock according to your past turnover data.
Focus on moving the merchandise that has proven to sell through quickly in the past. Build promotions around those items. Feature them in high-traffic areas on your floor. Discount them slightly (no need for a drastic markdown yet). At the same time, realize that some of your overstock will be found in categories that will not move, regardless of your efforts. Rather than allowing it to consume valuable floor space, consider marking it down or donating it. Do whatever is necessary to move it. At the very least, that will free up space for merchandise with a stronger sell-through.
Use Your Dead Inventory As A Loss Leader
Small retailers have a tendency to fixate on the amount they paid for their dead inventory. They often convince themselves that it would be unwise to let the merchandise move for less than it cost them, even if there’s little chance of it moving for more. Meanwhile, the overstock continues to take up floor space without generating cash flow.
Consider using the excess merchandise as a loss leader; mark down the price to draw people into your store. To be sure, this strategy is tough medicine to swallow. However, if you’re dealing with dead inventory that refuses to move, you may as well put it to good use. Ignore what you paid for it and price the overstock to entice customers. With a little luck, they’ll take it off your hands while buying other items during their visit.
As an independent shop owner, cash flow is critical to your survival. Tying it up in excess inventory, especially in merchandise with a slow sell-through, can be disastrous. If you’re dealing with an overstock situation, talk to your vendors about returns, focus on moving the fast-selling items, and put the dead stock to use as a loss leader. It may be slow, it may be painful, but it will reduce your overstock and generate precious cash flow.
About the Author
G.A. Wright specializes in high-impact store closing sales that produce big increases in sales volume and attract big audiences. Check out our website for more information: http://www.gawrightsales.com
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