Education

My Most Important Article Ever

December 5, 2007 | By: deaneparkes

Do you ever wish your store had more retail space? Do you ever have suppliers bringing great new products yet you have no room? Do you find you have challenges paying your bills even though your business is doing better each year?

If you answered yes to any or all you probably have inventory issues or to use the proper term you need better category management?

I do not attest to being a category management expert however a phone call I received last month made me realize how big an issue poor category management is especially to the small to medium retailers who do not have the staff to focus on it all the time.

A friend who owns a retail store called and asked ‘how much inventory should we have that has not sold in the last 90 days?’ This was a great question…. is there a % of product allowable that has not sold in 90 days? [According to Danny Wells, retail-training guru, you should not carry any product that has not sold at least one item in the past 90 days].

I did not have an immediate answer so I said I would get back to her. She, in the meantime, was going to ask a few other stores in her chain to look at how much inventory they had in stock that had not moved in the past 90 days. Fortunately they had a computer system to make this easy.

So I asked another retail friend who to me is a ‘master’ of category management,  ‘How much inventory should a store carry that has not sold in 90 days?’ With no hesitation he said ZERO! He also said his goal is to have nothing in his store that has not sold at least one unit in 30 days…YES 30 days! I was impressed and also understand why he has perhaps the highest margins of any full service health food retailer in the industry. He is persistent on keeping an inventory of products his customers BUY!

So I called up the woman who originally asked me and told her this. I said, “Perhaps 30 days is extreme for a smaller retailer however anything over 90 days is unacceptable”. Then she told me something that made me fall out of my chair. The stores she called averaged 30% stock that had not sold ONE UNIT in the past 90 days, with one store having 60% DEAD STOCK. YIKES!!!

Dead stock will bury your business!!

Lets take this to the next level. Industry stats from USA show the average wholesale value of inventory for a health store is $100,000+. So if IN FACT a store has 30% DEAD STOCK they have $33,000 of money sitting on the shelf instead of in the bank, paying bills, buying new hot products, merchandising best sellers with multiple facing for better sales, giving yourself a bonus, buying the building or whatever else you could do with $33,000 in your bank right now. THIS IS CRITICAL INFORMATION!!! Money problems cause so much misery yet in many cases it is not a money issue it is a category management issue. A store growing nicely in sales yet ends up out of business,  unable to pay bills because 1000s of dollars is money sitting in DEAD STOCK.

Heck even 10% of dead stock means 10% more space/money to work with.

How to correct the problem:

[Again this is not my expertise, my hope is to inspire you to make this a vital part of your business and do your own research].

• Have an easy way to track the age of your stock so you keep it under 90 days. Computers make this easy however some stores do not have computers so use date coding with your price gun.
• If it is over 90 days mark it down so you get ‘some’ money back, see if suppliers will take it back in exchange for what does sell, give to charity. You may get a lot less than wholesale however you need it gone and a new procedure in place so you do never have dead stock. Heck you may have to give it away. This is better for dead stock is a burden to your business.
• When bringing in new products get a 90 day guarantee sale and THEN after 90 days balance the inventory so you only keep enough stock for a 30 day period. And if zero sold well you know what to do…. send it all back.
• Get your entire staff involved. My ‘30 day’ friend has ‘weekly’ meetings with his dept managers reviewing all inventories.
• Special order if it is something a customer buys a couple times a year. Ask them to give you enough days’ notice so you can order it in before they run out.
• Switch people to what you do sell. Customers will come in asking for something they have seen in a magazine so you order 3, they buy 1 and 2 die on the shelf. Find a similar product and offer it. Yes some may only want the one item so special order it. There are over 50,000 items available to health stores. A 2000 sq ft store has about 5,000 according to a USA survey.  In my years in retail rarely did a customer leave if we did not have the brand they wanted.
• Put signs around your office & write down daily ‘I AM A CATEGORY MANAGEMENT GENIUS’ & “I LOVE CATEGORY MANAGEMENT”.

If you have no idea of the age of your current inventory then start today and in 90 days you will be able to identify dead stock and get rid of it. I GUARANTEE once you have your inventory all fresh and less than 90 days your business will be much HEALTHIER and you too will be in better control of the financial destiny of your business and your life.