Is Your Inventory Out of Control?
“Sell it or smell it,” is a concept I picked up while reading The Millionaire Mind. In the book, it was in reference to selling produce, but to some extent, it applies to retail business at large. Often times as small business owners, we get the wrong impression of what inventory represents. In the following paragraphs I hope to paint a picture for you that will change the way you see your inventory and help you avoid common pitfalls.
First, you want to think of your inventory as an investment. What do I mean by that? Each piece of inventory you purchase represents a financial investment. You want to sell each piece for as much as possible and as fast as possible. The faster you move your inventory, the greater your rate of return.
Second, avoid the temptation to buy and hold. It’s tempting to fall in love with the perceived value of a particular item and hold it for season after season. Doing so diminishes your rate of return and you run the risk of the items no longer being desirable. This will eventually force you to sell your product at a loss. This especially relates to fashion, because trends change with the wind.
Third, Sell it or smell it! If your inventory isn’t selling, don’t hold it until it’s out of season. Start discounting it. You don’t need to go with a knee-jerk reaction and give away the farm. If a particular item or style isn’t selling, start with 10% OFF and increase it, as you get closer to the end of the season. Realize that every investment isn’t going to yield maximum return. Sometimes you need to accept the breakeven point and reinvest your funds into something that will sell.
Forth, Buy for your customers and not for yourself. In other words, don’t get emotional about it. It’s tempting to go to a trade show and see products that you instantly fall in love with. You put the inventory in your store only to find your customer base didn’t share the same enthusiasm. Unless you’re a trendsetter, meaning you can start a new trend and get scores of people on board, you should be more selective of the inventory you choose to carry. Look for items that will bring your current customers back again and again as well as prompt them to tell someone else about you.
Fifth, Avoid the trap of too much inventory. The troubles that often befall small businesses are the woes of the minimum purchase. You have to purchase a minimum of 3 styles per size with a minimum order of $5,000.00. If the inventory sells quickly, you don’t have a problem, but if it doesn’t, you’re stuck in a bad investment. Consider consignment options whenever possible. Not all wholesalers will agree to it, but if you ask, you’ll find quite a few who will. You simply pay them monthly after the inventory sales. Consignment allows you to avoid the upfront financial risk and if the product doesn’t move, you can usually return it.
Sixth, Don’t try to please everyone. When we want to boost sales, we often start trying to carry a little of everything. This can lead to an inventory nightmare. You’re not a large department store and you can’t please everyone. Find a niche that works and stick with it. If you need more customers, focus on getting in front of more people like the current customers you serve. Host contests to motivate your current customers to spread the word about you. Be creative! If the first attempt doesn’t produce results, try something different. More than likely, it will be orders of magnitude cheaper than expanding your product base.
Seven, Avoid the clutter. If they can’t see it, they won’t buy it. Make sure your store is clean and easy to navigate. Most shoppers are impatient and don’t like the process of digging through bends or trying to separate clothing on a cluttered clothing rack. Make sure that your inventory can easily be seen. Keep walkways clear. Go visit a chain department store and take notes, they usually have this area down to a science.
Treat your inventory like an investment. Avoid the temptation to buy and hold. Move your inventory as quickly as possible. Buy for your customers, not for yourself. Don’t purchase too much inventory. Don’t try to please everyone and avoid clutter. I’m convinced that if you avoid these inventory nightmares, your retail business will have a much better chance to survive and thrive.
Written by: Eric L. Lipsey