Obsolete inventory ties up cash. It requires close monitoring to maintain the appropriate level of stock. For most retailers, poor buying decisions lead to poor cash flow. Review aging inventory. Reduce prices to sell slow-moving products and free up the cash to purchase more attractive merchandise. create automated reports to take abatement steps with shelf inventory older than 60 or 90 days.
Taking unplanned markdowns is difficult for all retailers. Create an expense budget line each month called “unplanned markdowns.” Use it when stagnant inventory seizes your cash flow. Use a markdown strategy* on the most obsolete inventory to spur customer sales. Build an “unplanned markdown” liability line into your monthly budgets. Offset markdowns with the “unplanned markdown” expense line. Store contributions are more predictable because the markdowns are already built into the budget.
Accrue a specific percent of sales each month to cover unplanned markdowns. Begin with 1-2%. Adjust as you gain more insight into the issue. Over time you may need to set a fluctuating percentage as inventory from back to school, end of year and holidays may need to be aggressively marked down. Tracking and managing an unplanned markdown budget should also start to reveal patterns about your buying habits and your customer’s purchasing habits. Look for a local affinity for particular colors. Be smart about purchasing items in the local school colors in apparel and supplies.
Savvy merchants create a markdown strategy* for stagnant inventory. Product that is non-seasonal and not selling may go on a 25%-50%-75% markdown plan. Prices change automatically every 30 days until the 90th day. Seasonal products typically need a more aggressive markdown plan. Such as a 50%-75% markdown plan completed within 45 days.
Select a specific back end cap or other store location for the marked down goods is a good merchandising practice. First, it removes poor sellers from the most valuable sales locations in the store. Second, it creates a destination for your bargain-minded shoppers who will regularly shop the discount areas. Bargain hunters can actually accelerate the cash flow and give your store a reputation for having great prices.