One of the keys to success in the retail world is stocking your shelves with products your customers want to buy, rather than products you want to sell. This might seem like a semantic distinction, but it is of crucial importance. Many retailers hold on to old inventory far too long, hoping to sell it before they bring in new items. Most shoppers, though. are looking for new items, which means the old inventory is just going to continue to sit for weeks, months, or even years to come. If you want to keep the cash register ringing and your bottom line a nice shade of black, you need to be willing to part with old inventory before it becomes a drain on your business.
The Concept of Sunk Cost
The usual reason for holding onto inventory too long is that money has been spent to purchase that inventory, so you want to at least sell it at a breakeven point, if not better. Unfortunately, this is harmful thinking that stands in the way of running a successful business. The problem is this—the money that you used to purchase your existing inventory has already been spent, and it isn’t coming back. That expense has no bearing on the current state of the market, meaning old inventory isn’t going to sell just because you want it to sell. Furthermore, that inventory is continuing to cost you, either by taking up valuable space for new inventory or—in the case of seasonal items—costing you space and money in storage.
As a retailer, you are going to have to accept the fact that sunk cost is simply part of doing business. Occasionally you will buy products that don’t sell, and that is okay. The impact on your business of those kinds of mistakes is usually minimal, unless you allow the product to linger on your shelves while taking up space that could be used for newer, more attractive inventory.
The best way to get unwanted inventory out of your store is to discount it deeply as soon as you realize that the market is moving on. There will always be a set of consumers who won’t mind buying older products as long as they are getting a great deal, and that is your target market. Use deep discounts to get products out of the way, even if you have to sell them for a loss in the end, and get new, exciting inventory in place as quickly as possible.
In years gone by, you may have been able to get away with keeping your inventory on the shelves for a longer period of time until it had all sold. In this day and age, however, that strategy simply isn’t going to work. If a customer is looking for a new product line, and they don’t find it in your store, they will simply head online to make the purchase. Rather than having to settle for the old model because that is all you are carrying, they will leave your stop altogether in favor of a digital transaction. It can be a big enough challenge getting customers in the door, don’t let them leave because of old inventory.
As a retailer who works in a physical space, you can never forget about the competition that the web provides. The latest and greatest is always going to be available online, so it needs to be in your store, as well. Online, retailers have the advantage of having unlimited digital ‘shelves’ on which to display their goods. You don’t have that luxury in the real world, so you need to make sure the shelves you do have are used to display the products that customers are hoping to purchase.
One of the worst things that can happen to your retail store is for it to be seen as irrelevant by potential customers. Anyone who is interested in the goods that you have for sale should always feel like they can find the latest trends, products, fashions, etc. within your walls. If that isn’t the case, you are quickly going to find that those customers will find somewhere else to shop. Let go of your old inventory, bring in the latest and greatest to fill up the store, and continue to look toward the future rather than clinging to the past.
Lastly, be honest with yourself. Just because you are in love with a product doesn’t mean your customers are. If you have a difficult time letting go of inventory, or seeing inventory with an objective eye, having a trusted manager help or take over inventory may be the best option.
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