Turning Obsolete Inventory

This post is inspired by an ongoing thread on another forum.  The question is, "What do you do with obsolete inventory?"  We’re not talking about junk, trade-ins, or floor models.  We’re looking at perfectly good items that may be last year’s models, or the last one of a formerly popular item.  You know the drill.  New merchandise comes in with new bells and whistles and the older items just get lost in the shuffle.  It’s after midnight and the coach has turned into a pumpkin.

Before we look at some of the excellent suggestions from forum members, let’s do some math.  For the sake of argument, we’ll assume that your normal margin is 50%, only because it’s a number that makes the math simpler.  We’re also going to ignore freight, interest, etc., because they can be greatly different from store to store and item to item.

OK, in our very simple scenario you have a brand-new 2007 model Super Sucker Vacuum that’s been in your inventory for a long time.  You paid $250.00 for it and you have it marked at $500.00 retail.  The 2008 model has a couple of extra features and the design is a little niftier.  It costs $275.00 and sells for $550.00.  It’s an easy sale and you’re moving a lot of them, let’s say an average of three per week.

Would your people sell the lone 2007 model if you reduced the price to $350.00 and paid them a $100.00 spiff?  That’s $150.00 less than the new model and a decent reward for the person who moves it.  But wait, you can’t make any money selling something for cost, especially if it’s been in your store for several months.  That’s just silly.

But think about it.  Right now you have $250.00 tied up in a piece of merchandise that’s not selling.  If you use this strategy, you’ll soon have $250.00 in cash.  If you take that $250.00 and add another $25.00 you can buy a new 2008 Super Sucker.  We’ve already established that you’re selling three of the new ones per week, so in a matter of days your $275.00 turns into $550.00 which you can use to buy TWO new Super Suckers and a potential $1,100.00 in the register, and so on and so on, etc.

No one is in business to sell merchandise at cost, but it’s important to look at the big picture.  At the end of the day, it’s your total return on investment, not the return on any single item, that makes the difference between a nice profit and a loss.  This may be the single most difficult concept for us to wrap our minds around, especially if we’re talking about our own money.  But it may also be the most important thing we can ever learn about retail.

Now, what are some of the suggestions from the people on the front line?  Read on:

  • Barter.  Trade the merchandise for radio time, newspaper space, or join a barter group.
  • Have a parking lot sale.  Put up a pop-up awning with some brightly colored poster board signs saying "Parking Lot Sale."  Put signs at parking lot entrances.  Hire a high-school kid to put flyers on people’s windshields if you share a busy parking lot with other stores.
  • A similar idea would be to put just one item on the sidewalk with a BIG markdown price tag.
  • Put a vac outside and charge $5.00 to whack it with a hammer.
  • Take the obsolete item, make sure it’s squeeky clean with fresh tags and signage.  In other words, try to restore the passion you had for the item when it was new.
  • Donate the items to charity and take a tax write off.  Depending on the type of business you have, this may or may not be a good idea.  The last thing you want to do is get in trouble with the IRS.  Another way to do this is to donate items to the local schools, churches, and clubs who come into your store looking for a donation.  Make sure you get proper recognition when you donate to a raffle or auction.  Consider the cost of the item as word-of-mouth advertising.

How about you?  Do you have any good ideas that you’d like to share?  Comment below.

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