Question from a reader:
“I have a retail business that I have been running for about a year. Lately I have been trouble keeping my inventory straight. Some months I sell out and my customers complain that I don’t have enough goods on the shelf. Other times, I load up with what they want and the items just sit. I hate having my profits sit on a shelf but I don’t want to run out in case customers come in. What am I doing wrong?”
It could be that you are doing nothing wrong and that the economy is just in flux and as a result, your customers just may be all over the map in trying to decide to buy something or not. Maybe they stocked up on the goods that aren’t going to perish over the next few days or week like paper towels, toilet paper, aspirin, coffee.
Maybe your business is still new enough that you haven’t quite nailed down the trends for your area.
First questions I would want to try to answer-How are your competitors doing? Are they running into the same problems? If so, just cut back on your orders and keep your inventory a little lower and wait till it sells through. You don’t want to overstock or go deep into your credit lines if you carry them for business and risk being stuck for both inventory you can’t sell and lines of credit that need to be paid off.
Has the local economy changed and is price now more of an issue for what you are selling? If so, can you discount your goods somewhat to clear them off the shelves and at least break even pricewise? Breaking even isn’t as good as making a profit but it beats losing money. That is totally unprofitable.
Did something else change where the competition is offering something a little more high tech, or efficient or anything like that? If so, you will need to review and see if you can liquidate your inventory and sell something more in line of what the buying public is interested in.
One of my favorite sayings is “Nobody ever went broke from selling through all their inventory.” If you have sold through and are temporarily out of stock, be glad that you received cash for what you ordered and trying tweaking your orders just SLIGHTLY for next week or month. You don’t want to over order and find that the demand for your product has shrunk.
Check with your orders from previous months and see what might be changing in trends. One example is summer items won’t sell in winter months usually and the same holds true for winter goods sold in summer. It is also tough to sell holiday products, like Christmas or Hanukkah decorations out of season.
Sometimes it may be just consumer blips but if all else fails, slow down on your ordering or stop entirely ordering the items that aren’t selling and seriously think about getting rid of excess inventory if the goods don’t look like they are moving.
If you plan on donating to charity the goods, make sure that you get letters from the registered organizations that you are donating the goods to and make sure that you have appraisals to substantiate your claims. The IRS and state tax agencies are checking deeper into non-cash contributions, especially if they are not supported with the proper documentation.
Kim Isaac Greenblatt
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