Aged Inventory Management: Freeing Up Cash to Buy New Items by Dick Abbott

We’ve been talking about how successful jewelry retailers should focus on an inventory strategy that features:

1. Rapid (weekly) reorders of your store’s Fast Sellers
2. Balanced mix of items in fashion categories (Moderate Sellers) that add freshness to your cases
3. An active plan to reduce your aged inventory (aging is category specific)

We covered strategies around the first 2 best practices in previous columns. In this article we will delve deeper into the 3rd: reducing aged inventory.

Why is it so imperative that we keep this old stock level low? These slow-selling items are the bane of this industry. They tie up your cash, inhibit you from reordering fast sellers and other fresh inventory. Slow payments to vendors can inhibit their ability to stock fast selling items and loss of sales opportunities.

The Edge has a systematic program called AIMS – Aged Inventory Management System that will identify aging product at different thresholds in the aging process.

Aged Inventory Management

We start in the “Monthly Aged Inventory Management” tab of Buying Tools. Here, we are able to identify the obsolete items that require your focus.

The Edge best practice strategy:

• Place a bounty (a bonus or spiff) on items entering the first phase of the aging process to be paid to the member of your team selling these items.
• The Edge will create a poster with an image of the items, the retail prices and bonus paid for selling each item.
• Suggest you run this program for 60 days to give the team time to sell these SKUs.
       NOTE:  This incentive payment will typically override commission payments for the sales team.
   
• For the unsold aged items passing through the first phase, we suggest you begin to progressively discount them and put them into a separate markdown case. The items in this “special” case should be organized by price point, not product type, as customers looking for bargains are price sensitive.
• The first markdown percentage will be the smallest and then progressively step up as the remaining unsold items pass through the established age thresholds. The first mark down recommended is 30% and then 40% followed by 50% at 30-day intervals but the discount amounts and time intervals are variable to be set by the user.
• When items in inventory for 18 months have a 90% chance of still being there after 5 years, getting as close to cost out of them and into something new more likely to sell is good practice.

The Edge is your partner to ‘sell through’ these old items

The Edge helps you feature the discounted items with special signage that your clientele will spot. Show dollar amounts saved versus percentage of discount on signage as it is more impactful.

It's Time to Say 'Goodbye'

We know it’s disappointing to sell inventory at steep discounts – sometimes below your cost. You tell yourself that the piece just needs to find the right buyer who may walk in next week. However, if that buyer has not walked in, in 3 years, they will not likely walk in next week! Accordingly, we need to be more proactive and aggressive to clear out this old inventory. There is nothing worse than too much old inventory in a jewelry store. Its affect is profoundly negative.

With freed-up dollars, you can pay down debt, invest in that new line you wanted, have the cash flow to replenish Fast Sellers and take advantage of opportunities that come your way. A good cash flow is essential to a good business. Don’t tie yours up in old stock.