Have excess inventory in your shop? Here are tips for clearing out old inventory that’s not making you money.
The idea is simple: You purchase inventory from your vendor. You mark the products up and sell them at your store for a profit.
Repeat ad infinitum.
But what happens when products don’t sell? What can you do when merchandise is slow to leave your shop?
It’s a common problem. Old inventory stunts your cash flow and annual profit. It also takes up precious display or storage space.
Retailers with excess inventory face a tough dilemma. Here’s a rundown of common solutions for dealing with slow-moving and excess inventory.
Return them to the supplier.
Depending on the size of the store and the nature of the vendor relationship, some retailers can negotiate a “guaranteed sell-through.” This allows store owners the opportunity to return unsold inventory for credit or cash. Securing this option is particularly useful when testing out a new product line. It’s a great safety net in case the new product flops, but suppliers are often reluctant to accept these terms.
Using clearance sales is a familiar and useful solution. This strategy can clear out inventory really well in some cases, but there are also risks to consider:
- A clearance section still allows undesirable inventory to take up precious display space.
- It can distract customer attention from full-price products.
- Unless they are very well managed and maintained, clearance sections can clutter and cheapen your customer’s in-store experience.
Donate products to charity.
Products that aren’t selling may be donated to a 501(c)3 charity in exchange for a tax write-off.
For many retailers, the tax incentive is a simple deduction on taxable income. The value of the deduction is usually the lesser of its original cost or its current fair market value. Therefore, if your product cost was $50, you can donate it as a write-off and deduct $50 from your taxable income. The amount actually you save depends on and how, when, and where you file your taxes. Be sure to consult an accountant on these matters and consider the time and paperwork involved in claiming this incentive.
Sell to a liquidation company.
This can be an option for larger retail stores, though small retailers may not have enough product to meet the minimum quantities most liquidation companies deal in. Furthermore, most liquidators offer mere pennies on the dollar. This solution isn’t normally used in the day-to-day operation of retail stores, but may be used in special circumstances like a store move, or as a last resort to offset losses when going out of business.
Retailers may choose to use online marketplaces like Amazon or eBay to offload items that aren’t selling. (Read more about how to do this effectively.) A wider pool of online customers will often buy what may not sell in-store due to seasonality or low local demand. However, some retailers work with brands that won’t allow their products to be sold to consumers through these online channels. Plus, the effort involved in creating listings, setting prices, managing orders, handling returns and shipping out inventory can drain significant time and resources. If these tasks are undesirable, business-to-business services like BoxFox, which allow independent retailers to sell slow-moving inventory online, are worth considering.
The best solution for excess inventory is the very same solution to many problems in life: prevention. Proper planning, forecasting, and data analysis can help retailers find the best inventory mix and quantities for their store. (Choosing the right POS system can also help.) But no one has a crystal ball, and the very best business planning won’t keep you from having some inventory that just won’t sell. Being familiar with a variety of solutions for excess inventory is an important strategy for every retailer’s ultimate success.
Looking to fill your shop with the right high-margin inventory? Get your free ticket here to the next ASD Market Week in Las Vegas! ASD brings together the world’s widest variety of wholesale lifestyle accessories, general merchandise, and retail educators into one easy-to shop trade show.
By Chris Palmer
Chris Palmer is CEO of BoxFox, a B2B marketplace for independent retailers to sell aged and slow-moving inventory for the best price possible. Meet the Chris and the team from BoxFox at the Independent Retailer Conference inside ASD this August!