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Stale merchandise doesn't become fresher with age

November 1, 2011 by Bob Phibbs — CEO, The Retail Doctor

When I was just out of college I had a couple roommates. We shared buying the groceries, each taking a turn at buying based on need. One day I poured a glass of fermented milk with clots and mold into a glass. My roomate's excuse? I couldn't see it.

Think of your inventory like you would fresh milk. Unless you look at it, you end up with spoiled, stained and unsellable merch.

Selling your inventory is your only way to make money.

Yet it is one of the least understood aspects of retail for many. Your merch has to come and go on a regular basis, or it will rot. Would you want to buy tens of gallons but end up with most of it spoiled? No; you manage fresh milk by how much you use. The same must be true of your merchandise.

If you buy too much inventory, it will go bad.

When you are buying merchandise, you're certainly hopeful that it will sell; but your orders have to be based on more than a hunch if you want to grow your business. That's called an open-to-buy system. Your stock levels must correspond with your most recent sales trends. For example, you can order 10% more merchandise if sales grew 10% in the previous two months.

In 2008, retail giant Nordstrom decided to shrink its year-end inventory per square foot 12 % from the previous year, thereby reducing supplies in line with shrinking demand. That poised them for future growth with new merch rather than stockpiles of unsold goods like Macy's — a store that was practically trying to give the stuff away with 70 and 80% off.

Don't Hold On To Past Failures

If it didn't sell when it was new, don't think it suddenly will six months later when your employees are cold to it. It's best to identify as quickly as possible what is not performing, move it out, and bring in fresh merchandise. That allows you to get more of the right merch to grow profits.

While that sounds simple, you've likely had the experience of telling your manager, "We are going to get rid of X product because it's not selling," and had your manager reply, "We can't get rid of it, we sell tons of it1" Then you went to your POS reports, and found you only sold a handful. That's because most employees remember most vividly their last sale, or the last thing a customer requested that you didn't have.

To get the big picture you need to use your category sales report from your POS system to determine correct inventory levels. Otherwise, you might think it being gone is reason enough to reorder.

But missing stock could be due to demand or theft; customers taking it when no one is looking, or employees lifting it as they take out the trash. You'll never know unless you look carefully at your category reports.

All of your categories should be able to be profitable. Again, shopworn merch is like sour milk; people avoid it.

Take aggressive markdowns now while you have shoppers coming in rather than waiting to have a sale in January when few are entering your doors.

Want to know what else to do before the holidays? Download my special report here.

About Bob Phibbs

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