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Out with the Old: Tips for Balancing Your Inventory

July 6, 2016

This might be a wake up call to those of you in retail, but chances are, you need to hear it. Ready? Clearance isn’t a four-letter word. For some reason, a lot of merchants tiptoe around markdowns. But why? Your money is already gone. Feeling like you MUST get back whatever you paid for your inventory, no matter how many years ago the merchandise first arrived, is simply murder on your cash flow.

Once you embrace the idea of inventory clearance, you’ll sidestep a common pitfall for retailers: avoiding aggressive clearance because of fears of financial loss, or holding onto inventory simply because it’s tough to decide what to clear out.

This bears repeating. If merchandise is old, you’ve already lost the money. The fact that it’s sitting on your display shelves doesn’t make that any less true. The only thing it does do is make your entire store look dated, out-of-touch, or just plain old. (Don’t kid yourself by thinking there’s always going to be demand for a part or accessory to a model or product. Maybe on eBay, but definitely not on your shelves.)

Here’s the rub: Inventory clearance is an aggressive form of balancing open-to-buy. No matter how diligent you are in your purchasing process, there’s bound to be leftover merchandise in January that needs to be put on clearance to get it out the door. We’re not suggesting a storewide 20% sale of your best and brightest. That won’t do a thing to clear out the oldest inventory. We’re talking about selling off only the stock that has been lying around without any movement.

So, here’s a general guideline—the more impressive the clearance markdown is from the original price, the faster the old inventory will go. Remember to put yourself in your customers’ heads. When they approach these types of merchandise, they are only thinking about their savings off the original price, not how much they are going to spend.

Here’s the rule of thumb for brick and mortar retailers:

1. Start your clearance at 30% off marked prices for one week. Alert customers via social media or email that selections are limited.

2. The following week, markdown whatever merchandise is left at 60% off for another week. Again alert your social media followers, maybe even with a paid Facebook ad.

3. After another week, it’s time to rip off the band aid. Donate it to charity or if you have to, write it off as a loss and throw it out. Do not let it stay in your store or backroom. It’s the only way you can ensure you move on.

4. Once you have aggressively cleared out your laggards, do a physical inventory so you have an accurate picture of new product you need to buy at trade shows.

It really is as simple as that. As you follow these tips, you’ll find that nothing feels better than getting rid of old baggage. Don’t forget to keep your eyes on the prize. Putting old merchandise on clearance makes it possible to stock your store with fresh inventory which gives you a fresh start for your store.

[Image Sidewalk Sale by Joe Ross on Flickr]