The Golden Rules of Managing Stock

In the first of our new series from retail consultant Catherine Erdly of Future Retail, we look at how you deal with clearing out underperforming stock to keep your cash flow, and your business, ticking over healthily.

Your stock can feel very personal

You’ve spent ages deciding on a new range, you’ve got it photographed, promoted it and shipped some of it off to your customers. The stock that you have in your business is something that you’ve chosen yourself, and put your own money into, so of course you are very invested in whether or not it sells. However, the disadvantage of having such a connection to your stock, is that like a difficult relationship, it can be hard to know when to let go! If it is not selling, then you need to clear it out of your business. Even if you love what you have bought, even if you had really high hopes for how it was going to appeal to your customers and even if you can’t understand why it isn’t flying out.

Clearing slow stock is the key to a healthy cashflow

Imagine that your stock is not a physical product, but instead it’s a pile of cash. If you look at this way, you can quickly imagine how much of the cash in your business is tied up in your stock. Product businesses run effectively when they keep a tight control on the amount of stock that is in the business at any one time, because sitting on too much stock is the number 1 way to quickly get into difficulties with your cash flow.

Every business has best sellers and worst sellers

Within every business there are always hero products or bestsellers, and there are also things that don’t sell, or worst sellers. Pareto’s Principle, also known as the 80/20 rule, shows that 80% of your sales will be coming from only 20% of your products. Take a look at your business – based on the last 3 month’s sales, what percentage of your sales were your top 20% of products taking? Chances are, it will be a large percentage! On the flip side, that means that 80% of your products are going to be taking only 20% of your sales between them. These slow selling products are known as “the tail”. The key to having a profitable product business is reduce how much stock is in your “tail” so that you don’t end up with lots of products that aren’t generating much cash for you.

Try to “clear as you go”

The phrase “clear as you go” just means that you should regularly (4 times a year, or even twice a year) take action to have a clear out of slow sellers and discontinued items. It means tackling the problems – items that you bought into but didn’t sell, best sellers that you re-bought but then stopped selling, or products where you had to commit to a really high minimum quantity which means you are left sitting on extra stock.

You need a stock-clearance sale

To clear the stock, you need to run a sale. For a stock clearance event, I suggest that you take a deep discount (for example 50%) and run it for a short period of time like a few days or a week. You want to make as big an impact as possible – change your home page to a sale banner, promote it on social media, perhaps run an Instagram Stories sale or something to emphasise the urgency of the event. If you only do this 2-4 times a year, it’s not going to damage your brand, especially if you make it clear that this is a clear-out rather than an ongoing promotion. Doing it regularly also means that you shouldn’t have huge amounts of stock to clear each time, allowing the sale lines to sell out quickly and reinforcing the idea to your customers that if they want to get it at a discount, they have to be quick!

Think of it as clearing out your garage

It can feel really upsetting to sell off at a discount the products that you have paid good money for in the past. It’s usually the top reason that people don’t clear out their stock as regularly as they should – because they are convinced that one day they’ll get a full price sale for that item. However, think about it like clearing out your garage. I remember selling off some no longer needed buggies that had been stored away for a couple of years. I sold them for far, far less than I bought them for, but I was just glad to get the space back and have some spare cash.

You want your time, energy and money focused on new things

People like new things. It’s just human nature. Did you know that the on a typical website, the “New In” page is usually one of the most visited? If you are selling to wholesale customers, the one thing they always want to know is what’s new. You need to have a consistent flow of new stock into your business. That’s not to say that you constantly have to be coming up with new product ideas, but you do need to be introducing new colours, new options, sizes or versions of your existing products on a regular basis. If you buy products from another brand, you want to be able to buy their new ranges, or introduce exciting new brands to your customers. Think of it as a chance to start a new conversation with an existing customer, or to offer something new to someone who hasn’t bought yet. However, if you try to keep bringing in new stock to a business where you are not clearing out the old stock effectively, very soon you will run out of time, money, storage space and energy as your whole business gets over-stocked.

Get in touch with Catherine if you need help putting together your stock-clearing strategy?

We are delighted to announce that Catherine will also be speaking at the Cultural Enterprises Conference in Harrogate 2020.

Has this blog inspired you to improve your buying and shop skills? If so, the Cultural Enterprises Academy is perfect for you!