Saturday, February 19, 2011

Over-Inventoried - The Killer

Before moving into the new season or reviewing the results from the one winding down we obviously should be looking at sales per category, margin and did our buy plan keep our space well merchandised without being over-inventoried. Over-inventoried is the key margin killer in most shops and that being the case worthy of some definition. There are basically three ways to be over-inventoried and any of these situations will keep your shop from realizing its potential.

The implications of each:

A - Over-inventoried in total number of units

Obviously this translates to dollars and has put as many retailers out of business as has lack of business. Pro shops that have backrooms full of unopened boxes or tubs of stock from previous seasons have almost no chance of making any margin as they will be paying any realized profit out for merchandise that is not working for them and at some point will have to give up margin in order to get the level of inventory back to healthy. Overbought pre-books are usually the reason for unopened boxes. Tubs of residual merchandise are usually the result of too quickly removing items from the floor to make room for unopened boxes.

B – Over-inventoried in total number of vendors

Having too many lines or brands of apparel almost always does justice to none. It is also most often the reason for too many units. It comes about as a result of not understanding the space and the number of turns involved for the shop being bought for and/or having the ability to say “No”.

C – Over-inventoried in a particular category

Owning too many units in a particular category not only limits your ability to make money in that category but by definition has to be hurting your potential in some other category either by cramping its space or limiting its open to buy.

A healthy inventory level does not insure success at retail but it does create the most promising opportunity to create that success. It’s like going into the bottom of the ninth with the score tied but your team has the middle of the batting order coming to the plate. There are other factors that will improve your ability to score; a staff dedicated to service and salesmanship for example, but concentrating on the process that will determine that elusive level and your subsequent plan is the key homework for this time of year.