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The Five Stages of Profitable Retailing, Part Four: What To Do If It Doesn’t Sell June 07, 2017 (0 comments)

Omaha, NE—In our first installment of the “Five Stages Of Profitable Retailing,” we talked about stages one and two: what to do before you buy, and how to buy better. In the second installment, we discussed stage three: how to sell what you buy. Last week, we talked about what you should do to keep the momentum going when an item sells quickly, and now we close out our series with Stage 5: What To Do If It Doesn’t Sell: Your ‘Exit Strategy.’

Before you even buy an item for the first time, ask yourself these three questions:

1. Who am I buying it for?  Who is my customer?
2. What will I do with it if it doesn’t sell?
3. When does the ‘Exit Strategy’ kick in for this item?

Yes, I am suggesting you determine the time it should take to sell each item before you buy it.  If you get that niggling doubt when you ask yourself this question, maybe you’re already not convinced it will sell.

So why are you buying it? Because you personally like it (just like the 65% plus of aged inventory you still own), or are you buying it to make a profit?

When is old, old?  Just as we pondered this question with the fast sellers, we now need to determine when an item is no longer new or a fast seller. In other words, old.

One of the things we do at the Academy is analyze the data from hundreds of stores, and as a by-product of this, we have identified an interesting statistic. It’s that a new or re-ordered item has the best chance of selling within the first 39 days. Don’t ask me why, it’s just one of those strange facts.

Likewise, the likelihood of it selling quickly after 39 days goes down dramatically.  It’s a fast and slippery slope from 39 days until the item is celebrating its first birthday with you.

So, am I saying it is old after 39 days?  No, I’m not.  But I am saying it is on its way to becoming old, and if you ignore it, chances are it will ‘hide’ and only reappear after a couple of years when it can no longer be ignored.

One of the reasons for this phenomenon is that your staff stop showing it.  When it was new, they showed it enthusiastically to anyone who would listen, but after 39 days of rejection and negative feedback, they lose confidence in it and start showing the newer item that has just arrived.  And boy, how quickly that happens.

You know it happens because:

• You staff have come out to the office and asked if that new stock that has just arrived from the show you just attended is ready to sell.  They just walked past $80,000 of perfectly good Diamond bracelets to get to the new one. 
• Or, have you employed a new salesperson, and in their first month, they sell a bunch of old stock because … they don’t know it’s old!  And nor do your customers.

So, you have two choices:

1. Replace your staff every 39 days or
2. Continue to work with your existing team every day to keep the new inventory fresh and alive and to train them on showing and selling the aged inventory.

I think you know I’m joking about replacing your staff—unless they really are the problem—but that’s a topic for another day!

To help you get aggressive with inventory that doesn’t sell quickly, let’s examine the cost of ignoring it. Most industry experts agree that if you still own an item, 12 months after you bought it, it has cost you an additional 20%.  So, that $1,000 item now owes you $1,200.  Why? 

• You have to insure it
• You have to promote it
• You have to pay staff to clean it and take it in and out of your displays every day
• You have to put a roof over its head (rent)
• You have to pay tax on it … yes even if it doesn’t sell
• You have to finance it … if you have any loans or debt, your aged inventory is costing you, and even if you don’t have debt, you could be earning interest on that money.

But it gets worse.  If that $1,000 was invested in stock that sold quickly at a margin, it would earn you at least $1,000 of profit (a 100% return/GMROI). So now that 1 year old $1,000 item owes you $2,200—and it compounds with each passing year! Can you still afford to ignore it? 

And worse still.  The item that now owes you $2,200, is worth, at best, 80% of what you paid for it i.e. $800.  How is your ‘investment’ looking now? 

A client of mine had the right attitude to aged inventory.  She hated it!  She said “If my customers don’t want it, nor do I.  Get rid of it!”   And it worked.  Out of more than $700K in inventory, she had $12,000 in aged inventory.  Admittedly that is the best I have seen, but it proves with the right attitude and the right strategies, it can be done.

Okay, now that we know ‘why’ and ‘when’ to get rid of it, let’s finish with ‘how’.

You have several options available to you, and the earlier you trigger them the better:

• Get into the habit of identifying new items of aged inventory, and revisiting existing ones, at least every week.
• Decide on a course of action.  Your options are:
• Remake it using the stones and metal into a known fast-seller or ‘special order’
• Return or Stock Balance it … but only if those are the agreed terms you have negotiated with the vendor and … you have honored your part of the deal i.e. trained your staff; re-ordered all of the items that did sell and paid for them quickly.  The benefit of doing this as soon as it shows signs of growing old is that is will still be a current model for the vendor so they can on-sell it.

Sell it:

• Clean it, re-ticket and re-price it to today’s realistic selling price.
• Make sure it looks new and then treat it as new i.e. enthusiastically.  Actively show it to customers.
• Provide a ‘Spiff’ incentive to you staff before discounting it to your customers.
• Agree on ‘Discount’ terms with your team and incentivize them for selling it at a lower discount than the agreed discount.  I would rather incentivize your staff rather than your customers … because your customers will come to expect a discount next time.
• Run a ‘Sale’ or ‘Promotion’ after exhausting all previous options.  Guard your reputation by not becoming a ‘Discount’ store but also guard your image … no one wants to go into a store full of old merchandise.
  Your website can be a good option for clearing aged inventory and putting some distance between it and the physical store.
• Scrap it.
• Donate it and write it off to ‘Advertising’.
• IMPORTANT: Keeping it and ignoring it is NOT AN OPTION!

• Constantly enroll your team on the reasons and benefits of doing this. 
• Delegate the process where possible and consider appointing an ‘Aged Inventory Champion’.
• Make pragmatic, financial decisions not financial ones.  You made a mistake, get over it.  Don’t make another one by ignoring it.

We hope you have enjoyed all parts of this series, to learn all the strategies of Profitable Retailing.  If you would like more customized strategies to bring your business to the next level, please reach out to us so we can speak further.

The Edge Retail Academy is a highly effective jewelry industry consulting company that provides customized strategies for retailers and vendors to increase profits, optimize growth, reduce debt, create profitable inventory solutions, build effective teams and enhance brand loyalty and profitability. The Academy is committed to helping jewelry businesses improve their bottom line while reducing uncertainty and stress. Edge Retail Academy software and the unique talent pool of their business advisors provide real world knowledge and advice for guaranteed results, all on a “no-contract” basis. www.edgeretailacademy.com. 

David Brown is a native New Zealander who in three years tripled sales and net profit in a jewelry store he bought in Australia. He is an expert in the areas of inventory management, sales growth strategies, retail systems and staff management and, with the development of powerful industry- specific software, Brown can supply business owners with information and strategies to significantly improve sales, profit margins, control, and ultimately peace of mind. To reach Brown, call (877) 569-8657 or email inquiries@edgeretailacademy.com