Move out the Dead!

This year has been a real grind for most retailers, and cash flow has been a real struggle. One of the best levers to pull when trying to deal with cash flow issues is to concentrate on selling dead inventory.

Many jewelers have a real love for their old inventory, and seem to have a blind spot when it comes to understanding the large cost of carrying old merchandise. These jewelers worry about discounting the dead stuff too much, or have the false notion that it keeps going up in value. Business Research Services of Seattle estimates the cost of carrying inventory can be as much as 25% per year. Included in these costs are shrinkage, insurance, labor (cleaning, physical inventory, tagging etc.). If this statistic is correct, then a piece of inventory that cost you $100 last year ate up $25 in additional capital over the year.

David Geller, in one of his seminars, offered up this example of how to look at dead merchandise.
Compare two inventory items, bot of which cost $100 and retail for $200. One item does not sell, the other sells 3 times during a one year period. Each item costs $100, but the item that sold generated $300 in profit.

The item that did not sell, has an opportunity cost associated with it. It may have cost you $25 to carry it for the year, but you could have also invested that original cost into an item that generated $300 in profit. So what did it really cost? The simple answer is: a lot!

Items that are dead should be moved out at any cost! If you move out a truly dead piece at 75% of cost, you will quickly make up the loss if you replace it with a fast mover. Or, more to the point, it is not costing you anything to hold it any longer, and most of us have too much inventory anyway!

So, move out the dead!