Over-Inventoried – The Killer

Before moving into the new season or reviewing the results from the one winding down, we 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 losing any realized profit by paying 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 and usually comes about as a result of not understanding the space and the number of turns involved for the shop as well as not 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.

I visit many shop managers who want to discuss the difficulties they have providing the type of service level I always suggest because of the cuts they have had to make to the shop operations budget. As an example of how this is impacted by being over-inventoried, consider the hypothetical scenario of taking the residual merchandise from a collection of men’s apparel and sweeping it into a tub in the backroom in order to make space for a new delivery. This may become the normal operating procedure throughout the season, perhaps with a sale planned for season’s end; there are now stored tubs of goods doing nothing for the retail effort and they amount to approximately $30,000.  This is not as unlikely a situation as might seem – I have seen it many times. Now consider, ironically, that full time shop staff-help starts at $30,000/year.  If that employee turns out to be an enthusiastic retail salesperson who takes some ownership of the space, the business revenue and ambiance could be dramatically improved and you start to get some idea of the killer that “more goods than needed” becomes.

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 and your team has the middle of the batting order coming to the plate. In both instances, there are still other factors that will improve your ability to score. Having a staff dedicated to service and salesmanship is having “no outs” in this baseball analogy, but concentrating on the process that will determine that elusive proper level of inventory and your subsequent buy plan is the key homework for this time of year to put yourself in position to win the game.