Internal Business Development | FEATURE Stock that is still technically ‘new’, less than 180 days old, can rapidly become old. To get a clearer picture of this concept, produce a stock-by-age report and organise by department to see the number of units involved. The point I’m making is that you choose to accept whether an old product stays within the store or not. If you really needed to you, always have the option of reducing the price to $1 and moving it quickly. That’s the real lesson here – you have control. For retailers, feeling in control of what happens within a business is directly related to the success and profit a business generates. It’s the reason why many people start their own business; the pursuit of feeling in control of the decision-making process. A business owner can choose whether they go to work or not. Feelings of freedom in business come from control. Old stock creates a number of issues. These include capital becoming tied up, displays looking tired and cluttered, and customers possibly perieving a business as out of touch with current market trends and fashions. Old stock can also cause issues for sales staff, who feel demotivated by a stagnant environment. It’s important to compare your sales-to-stock ratio. In the past 12 months, there are fewer than two, then potentially there is an old stock issue. If you look at this figure for each department, you’ll gain a better understanding of how widespread the issue is. I suggest using the 12-month column to dilute any possible one-off impacts, such as an unusually slow month in any specific department. The age of stock is also important. Stock that is still technically ‘new’, less than 180 days old, can rapidly become old. To get a clearer picture of this concept, produce a stock-by-age report and organise by department to see the number of units involved. With so many retail sectors flooding the market with ‘sales’ the traditional once-a-year attack on old product may not produce the same results it once did. Certainly, retailers should still do this at the time of year when they have achieved the best results, it’s important to continuously chip away at old stock to get the best traction. There are many strategies business owners can employ to slowly, but surely, clear this inventory. One approach may be a manager’s special cabinet, and another is paying incentives to sales staff for clearing a specific product. For retailers, feeling in control of what happens within a business is directly related to the success and profit a business generates. Additionally, retailers may talk with the suppliers of certain stock at the next buying group meeting concerning stale inventory. The starting point, however, is understanding that you have control over the fate of old product at all times. Controlled buying For many, one of the most enjoyable aspects of owning and operating a store is the chance to buy new product. Thankfully, you aren’t dealing with plastic bags or masking tape. Rings, watches and jewellery in general are fun things to buy and sell. This enjoyment can be an Achilles heel for some businesses, however. Many customers experience a rush of adrenaline when making a purchase, and it can be a similar experience for retailers, with the added justification of the purchase being for a business. Controlling the urge to purchase, and ensuring that you are buying for the right reasons, can be one of the most difficult areas of self-control for any store owner. The better control exerted by an owner the more effective a business will become. A well-reasoned buying plan must be tailored with a number of factors in mind. During the developing of a buying plan, the following questions should be kept in mind: • Debt reduction: Are you managing your cash flow in order to reduce outstanding loans or accounts? • Inventory turnover: Are the current product levels appropriate for needs of the business right now? • Diversity: Is the mixture of product conducive to reaching sales targets? Are there any balance issues that need addressing? • Increasing average retail: Does the level of product reflect overall sales targets? • Restocking: Have you replaced inventory of proven sellers? There’s a simple formula retailers can stick with - purchases (stock in) must be less than cost of sales (the original cost of the goods you have sold) for any measured period of time. Businesses must spend less on replacement product than the value of what is sold. If this continues indefinitely you will be reducing your level of stock. There is always the chance issues can surface which challenge the parity of this formula, such as deferred payments offered by suppliers, branded products introducing new ranges, and buying larger quantities of fast selling products. If one hypothetical product is guaranteed to sell, there is no cause for concern, because the income may well be generated before the invoice needs to be paid. If another hypothetical product doesn’t sell before the invoice is due, then the problem remains regardless of the payment terms. Every product that a store possesses, that has not been sold before payment is due, will lead to reduced cash flow. If ‘fast sellers’ represent 80 per cent of your sales, then 80 per cent of your ‘cost of sales’ is already pre-committed to replacing these items. Thus 20 per cent of your cost of sales is available for debt reduction, stock reduction, or 52 | <strong>August</strong> <strong>2022</strong>
Just the edge you need. Know your business and industry trends anywhere, anytime. At the beach or at a Trade Fair, review your stock and sales performance from any Supplier, even while you’re on their stand. Use pooled data to optimise profits by knowing the best performing items and emerging trends before you buy. Are you ready to improve your retail profits? • Mentoring & Management Consulting • Fun and Effective Sales Training • Seamless Succession Planning 07 5574 0322 mike@retailedgeconsultants.com www.retailedgeconsultants.com.au
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