Features — 22 January 2014

Liquidate Your Inventory the Right Way

Retailing pros offer real-life advice and examples.

When it comes to excess inventory the best analogy I ever heard was that it is like unwanted body fat. It is easy to gain, hard to lose and unhealthy to keep.

In many cases retailers look at “paid for” merchandise as furniture, a form of security and maybe part of their retirement. At least, if a business goes south, a retailer has some merchandise that they can liquidate and help pay the bills.

Every month Bill’s Gun Shop and Range features a firearm the business wants to move to reduce “steel” inventory.

“We call that ‘Museum Marketing,’” said Miles Hall, owner of H&H Shooting Sports Complex in Oklahoma City, Okla. “We all have our own form of museum in our store, but we didn’t buy the wrong stuff; we just haven’t found the right buyer”

It isn’t rocket science to realize that merchandise sitting in the same place for years doesn’t make a store any money. For retailers to show profits they need to convert their surplus, obsolete and slow-moving (SOS) inventory into hard cash that can be used to purchase merchandise that regularly turns with acceptable margins.

Excess merchandise, however, isn’t just about SOS items. Perhaps you bought deeper on a product or line than what you should have, and the demand isn’t there. It is all good merchandise, but you have too much of it. A newer model might have just come out, or you might want to change the product mix or eliminate a department or category.

A few items here and there aren’t worth losing sleep over unless you have boxes and boxes of merchandise just sitting around. By not getting rid of that merchandise you have: reduced cash available to buy new stuff; lost interest income from inventory dollars that could have been invested elsewhere; increased tax liability from “hand on” end-of-year inventory; carried costs; bored customers (after all, who wants to see the same old items?); and decreased inventory turns, which is where your profit comes from.

It’s not a pretty picture.

Seek and you shall find

Accumulating excess inventory is a lot like experiencing hearing loss. It happens a little bit at a time, and it isn’t identified until you come to the realization that you actually do have a problem.

Though most range/retailers have a handle on what they order and what they sell, sometimes unsold merchandise gets overlooked or placed behind or underneath something else…or put in a box way back in the warehouse.

Hornady Lock-N-Load kits had initial robust sales at H&H Shooting Sports Complex, but then they became stale and were put in stock. H&H included them in its Black Friday sale and enjoyed a high turnover.

“Inventory reports don’t give you the whole picture of what you actually have in your store,” said Glenn Duncan, owner of Duncan’s Outdoor Shop in Bay City, Mich. “You need to walk the store and the back room and snoop around nooks and crannies to see exactly what you do have and take stock. We’ve had that issue with certain seasonal products like turkey-hunting accessories.

“When you bring new products to the floor, salespeople get all excited, and then when sales taper off they sometimes move products to a less-visible area or box it up and replace it with a newer product or one they think will sell better, and they forget about it,” he continued. “Range owners need to train their staffs to remember to keep those older products in mind and not move them into a dark corner and allow them to collect dust.”

Hall concurs that it is a good idea for an owner to do detective work and “due diligence” to uncover excess stock and continuously remind selling staff what is available.

“Years ago we stocked some incredibly cool leather gun cases that came in a lot of different colors including neon, and everyone was very excited about them,” said Hall. “Then the staff moved on to different merchandise, and the cases were put on the back burner. I was walking around our stock area and came across a large box of them on a pallet that we had basically forgotten about.

“We went online and found out what comparable products were selling for, priced ours competitively and just wheeled the pallet out on the floor and pretty much sold out,” he said.

Hall also believes that much of a retailer’s overstock and excess inventory issues can be solved by constantly communicating with store staff and prompting them not to forget about in-stock merchandise.

“Everyone is very excited about products when they hit the floor, but after a while that interest wanes, and you have to re-communicate and re-spark the excitement and get them to think about how to sell those products—and they will,” said Hall.

Once retailers recognize that they have an excess inventory issue, then what?

How long is too long for merchandise to age?

Retail consultant and speaker Tom Shay, author of a series of business books for the National Shooting Sports Foundation, believes that retailers should be constantly thinking about moving merchandise to buy new merchandise.

“Letting merchandise sit on the shelf is like stuffing money under a mattress,” said Shay. “Retailers need to purchase inventory, sell inventory and then purchase inventory that you expect to sell to replace the original inventory.

H&H uncovered these cases in the back room, re-priced and merchandised them and turned them into hot-moving items.

“A lot depends on the type of item, how it sold in the past or, if it is a new item, how it is selling,” Shay added. “If you are sitting on general merchandise that is six to nine months old, you need to start moving it out. If it is a seasonal item, toward the end of the season a retailer should think about making incremental mark-downs. If it is a year-round item and you buy 12 of them and 90 days later you’ve only sold one of them, it is time to get rid of it.”

Taking the plunge

According to Bob Nelson, president of Power Retailing, a retail consulting and Liquidation Company, once retailers acknowledge their inventory problem they need to commit to actually selling the merchandise.

“Excess inventory doesn’t get better with age like fine wine,” said Nelson. “Retailers need to recognize that an inventory problem is just like a toothache in that if it isn’t fixed, it will only get worse, and they have to commit to take action.”

Once surplus inventory is identified and the retailer commits to getting rid of it, where do you go from there?

To sale or not to sale? That is the question

Probably the first thing retailers think about when they consider ridding themselves of excess inventory is having a special sale, which can be profitable if done right.

The words “Clearance,” “Liquidation” and “Close Out” can create a negative image of your range. Shay advises small business owners to come up with a more creative title.

“Do something different, entertaining and funny for a sale,” said Shay. “For example, St. Patrick’s Day is on March 17, and you could have a ‘Half off St. Patrick’s Day Sale’ in September. You could have a ‘Chocolate Cake Day’ sale or ‘Get Rid of the Turkeys’ sale around Thanksgiving. Search the Internet to find neat days to hold a sale, outside of the normal national holidays.”

If you do an online search for “unofficial holidays,” you’ll find a number of websites that list things happening throughout the year on which you can capitalize.

Giving your apparel a fresh look helps move such inventory.

“When doing a special sale retailers need to have strong theme, powerful signage and create an atmosphere of excitement, magic and urgency,” Nelson said. “If they have the same old same old type of sale, they will get what they’ve always gotten. If it has light attendance, customers have no sense of urgency and think they can always buy it tomorrow. If there are many customers all looking at the same things, then, if they want it, they have to buy it now or it is gone.”

What about pricing?

“When I do have excess merchandise I first decide if I do want to get rid of it, and then I unload it as quickly as I can and turn it into money to buy something that will show a profit,” said Tim Vanleiden, owner of Gun Guys in Ottawa, Kan.

“Look at each product and see what your cost is and margins are and realize that sometimes you may have to take a loss on it,” Vanleiden said. “But it isn’t doing you any good sitting around for 100 years collecting dust. Turn it into cash.”

John Monson, owner of Bill’s Gun Shop with two locations in Minnesota and one in Wisconsin, said, “When it comes to pricing, we research market and industry price standards. Our ancillary products carry between 30 and 40 points, and I will discount them to move them out of inventory as quickly as I can.

“Regarding guns, I don’t mind selling them at 10 points or less over cost,” said Monson. “We price excess merchandise very aggressively to move it out of our inventory. Besides, what’s wrong with giving our customers a great deal?”

And then there is timing

“Make hay when the sun shines and don’t miss the boat on taking advantage of heavy customer traffic,” said Nelson. “Close out merchandise during your best seasons whatever they may be.”

“While retailers may not want to offer clearance merchandise during the holiday season when they can sell everything for high margin, we’ve found that it doesn’t make a dent on the overall season sales,” Nelson said. “If they wait until after Christmas, their money is gone and the season is gone and they have lost sales opportunities.”

More ideas

A special sale isn’t the only way to reduce excess inventory. Retailers can hold a “progressive” sale where the price is reduced on a daily basis. They could have a “Preferred Customer” event that is open only to customers in their database on a certain day, offering deep discounts. They can initiate a time-limited “Orange Tag” promotion offering a discount on certain products or design and distribute an in-store flyer or newspaper insert promoting product “left-overs.” “Mystery boxes,” where you fill boxes with merchandise, place some tinted plastic wrap over one end (to keep product from falling out and not allowing customers to see what is inside) and mark them at $10, $20 and up may work. The only limitation is your creativeness.

Joe Keffer, president of The Sportsman’s Shop in New Holland, Pa., utilizes GunBroker.com and discount bins for some of his overstock.

“When we have a firearm we are tired of looking at, we list it on GunBroker.com, and that works well for us,” Keffer said. “We not only use GunBroker for guns but also for excess magazines and other shooting accessories that we overbought.

“We are very aggressive in pricing merchandise for our bargain bin,” Keffer added. “If we have to, we list it at cost and customers will browse through the bin. While they are looking for bargains they also buy normally priced merchandise, so it works well.”

During the Christmas season, Bill’s runs a 12 Days of Christmas promotion, which allows liquidating at least one overstock item each day.

Monson has another suggestion.

“We have a ‘gun of the month’ promotion where we feature a firearm that we want to move and we have a writer come in to write an evaluation and a short history, and we promote it as one of the end-of-the month specials in our flyers and on our website. If possible we will try to marry it with an optic, holster or accessory, like a magazine, of the month.”

“During the Christmas season we have our ‘12 Days of Christmas’ promotion, which I use to get rid of at least one overstock item per day,” Monson said. “It draws customers in the store, and I’m promoting an item that I’m long on, and I’m making a fair margin.”

Lots of ideas here to liquidate your inventory. They are tried and true.

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