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Monday, October 12, 2009

Got Dead Inventory? Turn that excess inventory into CASH!

The lackluster economy is daunting to many retailers. Fortunately, the crafty retailer will recognize great opportunity in the midst of the challenge. Seriously! Your areas of weakness will become more evident, which will provide you with a chance to refine and strengthen your retail business. After all, it is easy for busy store owners to coast along the sea of mediocrity when times are good. You know the drill... you put up with less than stellar employees when the cash register is jingling merrily. A weak economy pushes you to expect more from your staff...each team member must work at full capacity to justify the expense of her salary. Empty classes and workshops are not unduly painful when product sales are strong. However, you recognize a need to change when sales slow and you are paying teachers full price to conduct half empty workshops. Similarly, it is scary to realize that you have a store full of old merchandise when the economy dictates that it is more important than ever for you to be at the top of your game.

The overstock issue is insidious....You do not have a crystal ball and there is no guarantee that the merchandise you order will send your customer base into a buying frenzy. Craft inventory doesn't come with an expiration date or start to smell sour when it is past its prime. Mistakes happen. Czech glass was selling fast and you kept ordering it. You didn't clue in to the fact that sales had started to slow in that category and continued to order it at a rapid clip. Now you have more Czech glass beads than you can sell in a lifetime. You got a great deal on Swarovski crystal bicones and blew your entire bead budget on them. They were flying out the door for a while but things have changed. The internet retailers are virtually giving away the same commodity item and no one wants to pay your price. The RasberryLicious Art Yarn that had you misty eyed at the trade show has not elicited a similar reaction from your customers. Sigh.

What is the Crafty Retailer to do?


Turn a sharp eye toward Inventory Management in an effort to recapture profitability. It will take imagination and some elbow grease, but you can turn that dusty old stash into cold hard cash! The biggest mistake you can make is to hold on dead merchandise in a desperate belief that it will sell eventually, or tighten your grip out of some stubborn refusal to sell the product below a certain price point.

Get over it and GET ON WITH IT!

I often hear merchant's say that "they don't have to feed it or clothe it" to rationalize dead inventory and their refusal to unload it creatively. Please do not adopt a similar approach because dead inventory carries a very hefty price tag. It takes up valuable store real estate, prevents you from buying new stock, and screams "stale" to your customers. There is not a shopper alive who likes to go into a store that has the same merchandise week after week. It is boring and uninspiring. Crafters are creative folks, so "boring and uninspiring" marks the beginning of a store's death spiral. Don't let it happen to you.

Increase profitability by creating a system for effective Inventory Management:

Step One: Determine which inventory items are winners and losers by evaluating inventory turns. You want to have a high number of inventory turns. A product that hasn't turned in the last six months is dead inventory and should not be a staple on your shelves. How much of your existing stock has been sitting around for six months or more?

Step Two: Get rid of the product that is not moving.
Cash flow is critical and you will be amazed to see how quickly you can generate revenue if you focus on moving dead stock. Here are some ways to do it:

Use your dead stock as a loss leader.
Take a deep breath and get ready for some major price slashing. Mark down the price so significantly that it will draw customers to your shop. The product isn't moving. It hasn't moved in a very long time. You are not making any money on it. Quit smoking HOPIUM and get what you can while you still have time to bring in more "sellable" stock before the holidays. Chalk it up to a lesson learned and get it off your books.

Build a promotion around it!
The only limit is your imagination.

*Put dead stock in grab bags that are given away with every purchase over X dollars. You will encourage your customer to spend a little more to qualify for the gift with purchase and you will be liquidating stock that has become a liability.

*Put all of the dead inventory on a table...or two... or three... and have a progressive sale. Spend $10 and save 20%, spend $20 and save 30%, spend $30 and save 40% and so on all the way to 75%! Most retailers have at least a keystone mark-up so any losses will be minimal.

*Put the dead inventory in a treasure box by the register. Consumers can pick one free item from the treasure chest for every $20 that they spend.

*Make some beautiful gift baskets that include slow moving inventory as well as some inventory WINNERS. Have a sealed bid auction for the baskets. Consider donating a portion to charity to encourage participation.

Ask your vendors to consider a product return. It doesn't hurt to ask! Most vendors don't like to do it, but will consider it for a good customer. Expect some sort of a penalty and a requirement that you order a comparable dollar amount in exchange. It is an easy way to minimize your losses with little effort.

Make a trade with another retailer. Many craft store owners are part of trade associations. Use those contacts to work a barter or a trade. Cotton yarn might be dead inventory come September for a New York yarn shop, but Florida knitters purchase cotton year round. What is a liability for you might be quite attractive to a shop in another region.

Use the dead inventory in a store sample. It is well known in the retail craft community: make a sample and it will sell. Case in point: I recently designed some craft kits and I challenged myself to use only product that had a slow sell through. The product worked beautifully and the kits are selling like hotcakes....no discounts!

Offer employee incentives to move the merchandise. Identify which merchandise will be targeted that week and offer an incentive to the employee who sells the most product in that category. The incentive can be small....an extra half hour for lunch, a store credit, etc. My partner prints a list of slower moving product for the staff to review at our Monday morning staff meeting. It helps to inform staff members and to define the sales goals.

Step Three: Monitor your sales for Profitability. Small retailers sometimes confuse sales volume with profitability. I was one of 'em. I found that I was selling the heck out of a particular product line and kept ordering it, selling it and ordering more----watching my dollars grow tighter with each passing day. Hmmm. It didn't seem right and it wasn't--- a close inspection revealed that a small pricing error meant that I lost money with every sale. It wasn't significant, but I am in the business of making money, not losing it! Sigh. Some sales are better left to those retailers with deeper pockets.

Step Four: Buy Smart. You won't pick a winner every single time, but protect yourself to minimize risk. Limit your quantities and negotiate terms for returns. Your vendors are dealing with the same economic challenges facing you...now is a great time to leverage your position as a valued customer. The vendor who once had very high minimums might consider lowering them, thereby reducing your exposure. You won't know if you don't ask! Moreover, while it is important to maintain a solid stock of the basics, your customers are looking to be dazzled. Make sure that you offer enough "speciality" inventory to set you apart from the competition. Finally, avoid the "I am going to buy it at the lowest price possible" pitfall that derails many retailers. A store full of red yarn that you got for an incredible price means nothing to the customer looking for yellow! Specialty retail requires you to buy wide and buy shallow. It makes sense to pay a bit more per unit if it enables you to stock your store with a wide variety of goodies.

You are smart, capable, and talented! Think outside the box, watch your inventory numbers closely, and enjoy the ride!

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