The Pennsylvania Dutch have a wonderful expression that goes something like, “So soon old, so late smart.” I use this to begin the column this month because of the ever-present problem of too much inventory in relation to sales, otherwise known as poor inventory turn.
The beginning of the new year is an appropriate time to focus on this problem and do something about it. This year is an especially appropriate time to correct the problem, because many in the financial community are genuinely worried about the health of the business. The filings for Chapter 11 by Fabrikant and L.I.D., along with Jabel’s going out of business, should be all it takes to get your attention. These are all prominent industry firms that, for one reason or another, lost their way. In the retail community, too many jewelers are losing their way by accepting an inventory turn level of less than one time per year.
The curious thing is that this is an industry where we sit on unsold inventory and treat it like a precious commodity, not realizing that such a practice is a significant financial risk. While the unsold products themselves may indeed be precious commodities in their raw forms, they nonetheless pose a grave danger to the notion of a going concern.
What to do? First, know what your inventory turn is. If it’s less than one, get busy and start reviewing your unit sales and inventory by department and individual item. My guess is that you will find that you’re out of items that sell well and are stocked with pieces that haven’t sold. In many cases the merchandise that hasn’t sold has been with you for over a year. Balancing your unit inventory with your unit rate of sale is the step.
What do I mean by balance? I mean make a decision to mark down the slow-selling merchandise or make a deal with your supplier to take back the merchandise or, in the worst case, give it away to charity. At least in the last case you can take an income tax deduction for the value of the product.
Another step is to aggregate slow-selling merchandise in one place where you can see it every day. Too many times we hide problem inventory in the safe or under a counter, where we can’t see it. Out of sight is out of mind.
This is and has been a serious problem for many years. My hope is that you will focus on it now before your banker decides that your line of credit needs adjustment or elimination because your inventory and sales are out of balance.
Last but not least, to learn more about solving this inventory problem, attend a Steve LeFever (Business Resource Services) seminar by calling (206) 284-5102 or call Abe Sherman (BIG) at (530) 543-1978 or Malcolm Alderton (ARMS) at (702) 990-4100. But do something now. It’s that time of year again, and you’re not getting any younger!