Is There a Benefit to Keeping This Season’s Leftover Inventory?

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Is There a Benefit to Keeping This Season’s Leftover Inventory?

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The answer is a solid NO. Let me explain why….

All merchandise has a shelf life but seasonal merchandise has a shorter shelf life. As retailers, we buy the merchandise that we think is going to sell in our stores, and on occasion, we miss the mark, or sell some and not all.

What should we do then? We all know that the bargain hunters are out after Christmas. We mark the merchandise down – 30%, then 50%, then 75% – and it still does not sell.

Some pack it up and pull it out again the next season. There are a lot of reasons that this can be costly in the long run. It is difficult to give up on what we thought was a good investment for our store. Let’s look at inventory turnover as one metric that can help guide us through this process.

The definition of inventory turnover is: The frequency that a store sells its average dollar inventory, ie a measure of the inventory efficiency expressed as a ratio. For example, if a store does $500,000 in sales and has $495,000 in inventory at retail, the store has approximately one years’ worth of merchandise, or one turn.

Inventory turnover is a key indicator of how well merchandise is performing at retail. It does not appear on a retailer’s P&L because accounting does not factor in the element of time.

Very simply stated, increasing turns increases cash flow. An improvement of only 1 week in annual sell-through increases cash flow by approximately 1 percent of annual sales.

Whether it is inventory packed in the stockroom for the year or merchandise that has just been hanging around too long, it can really hurt the cash position of a business. The answer is to take it through the markdown process, and if it just does not sell, make the tough decision to part with the merchandise.

Depending on the merchandise, you could try a consignment store or donating to your favorite charity or give away as a “gift” with purchase. It is painful, but move to the next items that will get you the return that you expect.

THESE ARE 5 REASONS NOT TO PACK SEASONAL MERCHANDISE AWAY:

  1. What is going to change between now and next year that is going to make it sell?
  2. It takes up space and uses productivity to pack and unpack it.
  3. Freshness is important. Do you want your customers to see the same items from year to year? Or do we want to have the latest and greatest trends in our store? Merchandise ages in a stockroom. Often it becomes discolored, packaging gets tattered, and does not any longer represent the quality or look of the store.
  4. It ties up cash. There is inventory that could be bought and merchandised in that space that could be productive.
  5. Inventory that hangs around for more than a year is still considered an asset in the books. Why would you want to be taxed on something twice? Three times? Or more?
2019-04-04T05:26:14+00:00