From time to time, every retailer is forced to deal with excess inventory. Changing style preferences, climate not conducive for seasonal items, road construction that drags on f-o-r-e-v-e-r . . . the result is excess inventory. Unless you move it quickly, this inventory sits around draining your profits by incurring storage costs and losing value. What to do?
First, resolve right now NOT to get caught in this trap. The best way to avoid the problem is having and using an Open-to-Buy. However, even a devotee of the Open-to-Buy will occasionally make a poor choice at market or be forced to endure another spring-during December, January or February. Old inventory loses value as it sits on your shelf. No matter how classic the design that 'never goes out of style', it must go out of your store for you to enjoy your profit.
To put it bluntly, excess inventory results in increased overhead from insurance, property taxes and merchandise becoming shop-worn, which further increases the costs of doing business, and ultimately makes the business less competitive. It can also cheapen the reputation of the business. Would you want your customers telling someone who had just moved to the area that you probably still have polyester leisure suits? You don't, do you?
The causes of excess inventory are simple.
1. Stores that purposefully stock large quantities of merchandise that they dream about selling rather than having a realistic sales plan.
2. Items are purchased that have a limited appeal to the store's customers. Still, so matter what the cost, some owners don't want to lose a sale to that one someone who may someday come through the door.
3. A store takes a "good deal" at market and purchases more than they anticipate selling. Was it really a good deal if you did not need it?
4. Buyers lack adequate planning so inventory purchases are over in some classes and under in others.
5. In-season markdowns are either not planned, not taken or both.
6. Companies have no buying plan (Open-To-Buy) to schedule the arrival of fresh new merchandise regularly throughout the year.
Yes, the causes of excess inventory are simple to understand but, perhaps, more difficult to control. However, by using and following an Open-to-Buy (which requires in-season revisions to sales plans for greatest accuracy) much excess inventory will be eliminated. But, what can you do when you find yourself dealing with the dreaded excess?
First have a plan. Consider and list options while there is no problem so you can make an informed decision and then move quickly and correctly to eliminate excess inventory.
1. Return it to the manufacturer if possible. Sometimes vendors will let stores "swap out" goods for something else that may work better in your store. Small, independent businesses may have a difficult time, but it never hurts to ask especially in an unstable economy.
2. Sell it to an inventory liquidator. If you've never worked with a liquidator before, ask for references and check them.
3. Donate the excess inventory. An ideal donation would be one made for marketing purposes such as coats and jackets to a homeless shelter.
4. Offer extremely steep discounts. I do not recommend every going below 50% off because it devalues the store's reputation. However, I know some retailers who have very successful end of season sales with very deep markdowns.
5. Sell it online. I don't personally recommended the online route, but, again, I know several retailers who do have success moving merchandise through this venue.
Finally, note the cause of the situation. If your store is consistently missing sales goals, you may need a different mix of sales personnel. If one or two sales employees consistently fall short of their sales goals and they cannot or will not improve, replace them. Remember you are in business to make money, not to collect merchandise for an inventory museum or to provide a hand-out to unmotivated employees.