Dear David: 

I feel like I have done everything I know to do, but I am struggling to move old inventory.  Cash is really tight and I have a lot of money tied up in those products.  I have more than $500,000 of inventory that is over a year old.  What can I do to get rid of this inventory quickly and knot kill my margin?

Dear Compromised Owner,

Sorry to say but it looks like you are stuck between and rock and a hard place.  Moving that much inventory quickly without taking a bit hit to your margin is very difficult if not impossible.  I will provide some best practices to move as much as possible but most of my focus will be for you to avoid getting into this mess again in the future.  Here is my advice:

 

Short-Term Strategy

If you do a substantial amount of builder business one way to move the inventory is to offer this obsolete product as an upgrade to any base grade selections that are part of your running line stock.  This will suspend the amount of new purchases of recurring stock and replace it with some of this inventory you want to move.  Although, you will not get the retail margins you were hoping you are providing your clients with a better product and earning some goodwill.   And the byproduct is you are generating some cash. 

You may also want to look at renting a big tent and setting it up in your parking lot and holding an inventory clearance sale.  If you believe you don’t have enough inventory to make a real splash and drive traffic you may want to talk to your local distributors and see if they can supplement your event with seconds/discontinued products that they too want to move.   Many distributors will allow you to return any unsold products for no restock fees. 

Do not hire a liquidation company that promises big returns and little inconvenience.  I could write a novel on how many flooring retailers have been ripped off and disappointed taking that route. 

Long Term Strategy Framework

Let’s get the basics down on how an effective obsolescence plan should look for you:

  1. Determine the length of time you want to hold onto your products before something should be done
  • It can be based on turn rate goals or a simple number of days you can stand looking at it taking up space. Regardless, you need to set that timeline and do not deviate unless you feel there is a need to completely modify the strategy
  1. Develop a method to track aging of products
  • These methods can be as simple as inventory tags that show the date it was received or the more sophisticated system of computerized inventory
  1. Design system to monitor age
  • Determine if you are going to review daily, weekly, monthly and how you are going to compare age against standard. Some more advanced operating systems will allow you to set turn rate goals and provide automated reports highlighting those products outside the set parameters
  1. Create strategy to move unproductive products
  • Define, and stick with, detailed strategy of what you are going to do to move out obsolete items. This could include a markdown/markup, placement, and/or spiff strategy
  1. Implement communication plan
  • Build communication vehicle to let your staff know what needs to be moved, the strategy of how it is to be moved, and what they get in return for moving it
  1. Follow up and make adjustments
  • Follow up on how well your strategy is performing and make necessary modifications

Long Term Strategy Details

Once you get your inventory levels under control pick 10 items in each category that you want to move.  Track the performance of those 10 items and when you sell out of one or all of these items replace them to keep the mix to 10 items.  If you try to move a large selection of product you will confuse both consumers and sales associates and it will be difficult to consistently move obsolete items. 

Let’s take a category that you want to turn 4x per year, meaning every 91 days, and set a strategy

 

  1. The first thing to do is display the 10 products at the front of the store so people have to literally trip over them to not see them
  • Don’t discount it
  1. If after another month you still haven’t gotten rid of the inventory spiff the sales associates to sell it and keep the price the same
  2. If after another month the inventory still have not sold, discount it 10% and continue to spiff the sales associates
  3. Now if it is still there 30 days later discount it 25% and continue to spiff the sales associates
  4. So if after all that it is still there 30 days later discount it 50%, remove the spiff, and move the display to a clearance area

 

Keep in mind that you are not open to buy any additional inventory, other than running lines you use for builder, multi-family, or commercial products, until you get things in order.  And for a company with over $500,000 of inventory that will be quite some time.  All deals that are too good to be true, guess what, are too good to be true so just say no.  Best of luck.