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Ask the Experts: Smart inventory control keeps your investment safe and merchandise moving



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By Georganne Bender
By Rich Kizer
Published: October 11, 2016
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Question: How do I deal with the old merchandise on my store shelves that clogs up my displays?

Answer: Old merchandise is something too many retailers like to pretend doesn’t exist. But you can’t just straighten that old product one more time and hope for the best—you have to take control, even if it hurts.

Take the retailer who was convinced by a shady financial advisor to invest $1,000. The advisor promised that $1,000 investment would yield $2,500 within 12 months, so the retailer handed over his hard-earned cash.

Three months later the retailer called the advisor to see how his money was growing. His investment was down to $815, but the advisor encouraged him to be patient. Another three months passed and the retailer found his investment was down to $488. Six months later, its value was just $104.

Not exactly a happy ending, is it? Yet, this scenario happens to retailers across the U.S. and Canada each year. But in these cases, substitute the dubious financial advisor with the retailer.

We’ve all been there. If you’ve ever held on to merchandise far past its selling life, that includes you.
Sometimes you hold on to product so long it begins to fade, wear a little around the edges or fall out of style.

If you’re honest with yourself, you know that you have some of this merchandise on your sales floor right now. Here’s the thing: The trendy and seasonal items you carry have limited life cycles. You should never wait until shoppers turn up their noses and walk away from a display to suggest it’s time for a markdown. The basic items you need to stock every day can become shopworn and need to go, too—even if it means reordering the same item again.

Just because you loved it when you bought it doesn’t mean that customers will love it, too. And it doesn’t mean that it’s guaranteed to sell. We call buying things you personally fall in love with the “halo effect”—it’s dangerous to your bottom line. You need to make sure that your invested money works smarter and harder for you, supplying a return on your investment.

 
Let’s look at the key areas you need to manage to move ’em out:

 Calculate your turn. Inventory turnover is a measure of the number of times inventory is sold within a period of time, usually a year. The easiest to way to determine your inventory turn figure is to simply divide last year’s total retail sales by year-ending inventory at retail value.

To achieve a better turn rate, you need to closely control your inventory. Be insistent about delivery dates and implement a strong markdown program to clear out product that’s past its sell date.

 Tell vendors when you want to receive your orders. Before you place an order, ask yourself when the product actually needs to be in the store. It’s OK to tell your vendors what you need! It’s foolish to take late-season deliveries if that can hurt you, and it’s just as foolish to receive—and pay for—goods far in advance of your actual need time. So request delivery dates. You won’t always get your wish, but if you don’t ask, the vendor will always get theirs.

 It’s product, not wine, and it doesn’t get better over time. To manage your inventory and return on investment, you need to know the age of every item on your sales floor and in your back room. When did it arrive? You don’t always     have time to run to your computer or POS system to look it up. And let’s be honest: When was the last time you actually did that? Instead, adopt a system to mark each item with a “received date” code that allows you to instantly determine age without having to leave the sales floor to check a report. We like a simple bin ticket.

Bin tickets are stickers that you place on each shelf/fixture or hang on a peg hook to indicate the item’s designated home. Bin tickets should include the information that’s important to you, including SKU number, maximum and minimum quantities, price, cost (in code that shoppers can’t decipher), vendor and date code. The date code tells you when the item was received, so you’ll know at a glance which products are selling and which ones are not.

If you’ve been to one of our presentations, you’ve probably heard us talk about our inventory control Dot System. Let’s say a customer asks for a particular item and you lead them to the place it’s supposed to be. There’s the bin ticket, but the shelf is empty. Or worse, the space is filled with another product. How long has this merchandise been out of stock? Is there more in the back room? Here’s where the Dot System comes into play.

You’ll need a supply of small red and green adhesive dots. A green dot on the bin ticket means there is more of this product in the back room. A red dot on the bin ticket means there is no more product available in the back room. No dot on the bin ticket means there isn’t any more of this product and that this item is not to be reordered.

Train your associates to check the stock room each time they come across an empty shelf and a bin ticket with a green dot. That product is available and needs to be restocked ASAP.
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