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July 11, 2014 — A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.
By guest columnist Tom Shay, Profits Plus Solutions
“I have inventory that is getting ready to ‘celebrate a birthday’ in our store. What should I do with older inventory?” L.W., Cody
Having inventory that is sitting on your shelf is much like taking money and putting it under your mattress.
As an example, we calculated a business having 15 percent of its inventory categorized as older. This store had an inventory turn rate of 1.84 times per year. If that 15 percent of old inventory were sold at cost and the money put in a checking account, the remaining inventory would show a true inventory turn rate of 2.12 times per year.
If the business owner were to take the money from having sold the older inventory and reinvest it in inventory that turned at the same 2.12 turn rate, the sales of the business would increase by 13.21 percent. The profit for this same store would increase by 46 percent. Better yet, the return on investment (ROI) increases from 28 percent to 42 percent.
What can you do with old inventory, and what should you not do?
Your store should not have a “clearance corner.” Putting this older merchandise in a designated part of the store only attracts customers that look exclusively for sale price items; they will walk by the new merchandise you want them to see.
Do not save this inventory for an event like a sidewalk sale. When you advertise a special sale, it should always include merchandise that you purchase specifically for the event. Great retailers produce better margins during their sales events than they do during the rest of the year. They work with vendors to acquire these new products for the sales event.
To remove the merchandise, without your business giving the impression of a clearance store, try bundling the inventory with other full-price items. If you are a furniture store and you have lamps you want to get rid of, consider pricing them with a bedroom or living room set.
One way or another, the older merchandise has to go, because you need those inventory dollars to work for you. Your sales floor will look better while inventory turns, and profit and ROI will increase.
A blog version of this article and an opportunity to post comments is available at http://wyen.biz/blog1/.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email email@example.com or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.