How to Manage Nonproductive Inventory, Part 2
Keeping the 80/20 rule in mind, your first priority is to address the few items with the largest volume of overstocks. This will have the most immediate financial impact on your business. Use all the marketing tools in your arsenal to promote these items immediately. Marking the items down in your peak season gives you the best opportunity to move overstocks quickly. Provide visibility in stores, online and in catalogs. Try a lower initial markdown — it acts as an order starter to drive top-line sales while minimizing future marketing expenses from recurring promotions on the same items.
There's no single solution for the other side of the 80/20 equation. They require routine discipline. Set a minimum monthly sales threshold per product, review product sales each month and be diligent about discontinuing items that don't meet the threshold. The cost of holding that inventory and waiting for consumers to find it and respond almost always outpaces the gross margin benefit of waiting to sell at full price. Retailers are using a variety of creative marketing approaches online to address these smaller inventory problems.
"Too much too soon" inventory presents an opportunity. This is good inventory — consumers love the product, but you simply own too much of it. Create one-time promotions to offer great products at temporary reduced prices. The gains in sales and corresponding reductions in inventory overhead typically make this strategy a win-win, benefitting both your financials and your customers.
Left unaddressed, nonproductive inventory can be a major financial drag on your business. But you can reduce its negative impact and even create some positive outcomes by following the simple guidelines laid out here. Good luck!
Joe is Vice President of Product Solutions at Software Paradigms International (SPI), an award-winning provider of technology solutions, including merchandise planning applications, mobile applications, eCommerce development and hosting and integration services, to retailers for more than 20 years.
Joe is a 34-year veteran of the retail industry with hands-on experience in marketing, merchandising, inventory management and business development at multichannel retail companies including Lands’ End, LifeSketch.com, Nordstrom.com and Duluth Trading Company. At SPI, Joe uses his experience to help customers and prospects understand how to improve sales and profits through applying industry best practices in merchandise planning and inventory management systems and processes.