Here is the ninth entry of the Twelve Components You Need in Your Merchandising Plan titled: Preplan Inventory Reductions. Planning stock reductions is combination of good sales promotion planning and proactively addressing aged inventory. Managing reductions is more than just an accounting exercise of writing off inventory value.
Many stores have developed routine approaches to themed sales throughout the year. Many stores find an annual sale between Christmas and early January to be very effective. Others use annual customer appreciation sales, designer/trunk shows, open houses; and repair/jewelry remodeling sales all can be very profitable. These are the best of times to preplan your promotions to maximize your return on marketing investment to promote store foot traffic and promotion of specific inventory items.
Planning reductions through promotions is a proactive approach to addressing the need to provide the right stimuli to maximize the number of store shoppers and customers during specific time periods. Planning reductions helps merchandising managers better plan inventory turnover and more accurately manage open to buy programming. If you don’t have a promotional calendar start one now and begin to plan your stock reductions through promotion and proactive merchandising management.
How long should an item be in inventory before it sells? It really depends on the category. Take a look at each category and find those items that are not turning over more than once a year and reconsider their total contribution to sales. Products in every category should be tracked by days in inventory and should be defined as aged inventory based on a predetermined number of days in inventory. How many times should trendy fashion designs turnover each year?
Aged inventory items bore shoppers. Items that sit too long in inventory have a negative effect on your store shoppers. These are items that your customers keep passing over declaring they have no interest in them. Consider how aged inventory does not contribute to an exciting shopping experience for customers. It is too expensive to keep products in inventory that do not sell. Cash flow is king in this economy. Discounted product offers more resources and makes a more positive contribution to the success of the company than does unsellable inventory. There are no reports of any inflation being on the rise, so even this age old rationale for keeping old inventory is not valid. Sitting on unsellable inventory reduces competitiveness. Find new sales channels to move unsellable inventory at reduced prices. Several retailers are finding various sources on the internet and are not always using their brand name or store name when selling heavily reduced aged inventory.
Try more creative merchandising by displaying hot sellers and aged inventory together by matching items with similar design and style. You will be surprised how blending your inventory is better than creating one display case with a bunch mismatched dogs barking at shoppers. Offer more incentive to sales associates to move aged inventory.
Consider reductions in sales from employee sales. Some stores allow employees to purchase hot sellers using employee discounts and others ask employees to special order hot sellers. Offering employee discounts is smart business, but not when employees purchase the most sellable items that would have been purchased by customers at higher margins.
When was the last time you analyzed inventory loss factors by category? Loss factors come from theft and damage. Some categories have higher loss factors and this must be considered in your approach to margin/profit management,
Keep track of reordering minimums by vendor to maximize stock balancing. Too often stores do not maximize the amount of stock they should be returning to suppliers and replacing with more sellable inventory. Plan stock reductions by maximizing your ability to return unsellable merchandise through stock balancing vendor programs; and be sure to stay current with each vendor regarding their stock balancing programs. The trend is certainly towards lower minimum order amounts. Make it a habit of routinely asking vendors about their return policies and stock balancing programs whenever you are placing orders.
Preplan your reductions by setting a timeline to identify aged inventory by category. Combine product turns and profit margins when evaluating product performance. Preplanning your reductions will help you be better prepared for identifying alternative sales methods and sales channels to facilitate turning over aged inventory. Product turns are so very important in this economy and planning reductions is a proactive way to maximize managing a more sellable inventory.