Retailers: How to Avoid the Markdown Trap

Retailers: How to Avoid the Markdown Trap

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As certain as the seasons shift, retailers find themselves with leftover inventory that is out of date. Of course, you could pack up those Christmas decorations or outdoor living furniture and stow those items until demand returns the following year. Likely, you are like every other small business owner with a need to quickly turn inventory into cash to pay your bills.

One of the favorite words in the consumer lexicon is “clearance,” but that same term can squeeze your margins and cut your profitability. Here’s how to get a handle on your inventory and avoid the costly markdowns that are a numeric trap for your enterprise.

1. Plan your sales with care.
Sales planning is part of the retailing process, but unless you are actively engaged in that planning, then you cannot possibly anticipate how much stock to order. Specifically, you need to know when your items will sell, what reasonable amount to stock and how many units customers will want. Certainly, you cannot always know those numbers, but your previous sales records can help you pinpoint it.

2. Time your inventory.
For some retailers, they need to order their seasonal goods months in advance. By July you may be placing your first Christmas orders for items that customers won’t be looking for until early November. Certainly, you need to anticipate what they want, gauge demand and, if possible, follow up with a second order if a sudden surge in product interest is detected. Likely, you know whether a late order can be fulfilled in a timely fashion. If not, do your best to predict what will sell for the season ahead.

3. Last buys are not always good buys.
Even if your supplier is able to get an item to you late, it may not be soon enough to satisfy your customers. A Dec. 7 delivery provides ample time to receive the goods before Christmas, but your customers may have already gone to your competitors to shop. Sometimes it is best to allow a depleted item to remain unfilled or face the prospect of steep markdowns to move slow selling inventory.

4. Markdown your slow sellers ahead of time.
It never fails to happen: one or two products are seasonal slow sellers from the start. Instead of holding off on marking down these items after the season, gather your laggards and put them on display where everyone can see them. A markdown of 25 percent is much easier to swallow when customers are in your store than a 50 percent markdown when traffic slows. Besides, you will have cut your losses early and protected your profit lines.

5. Try it before you buy it.
Small business operators look for every advantage they can to one-up the big guys. Consequently, you may be tempted to roll out a new line of products or goods with a bang and in anticipation of consumer demand. However, you might end up with a slow seller that will require deep discounting to move later. If possible, order a token inventory and put these items on display. Then, gauge customer reaction carefully. Afterwards, you can make your inventory decision based on sales or not and act accordingly.

Inventory Anticipation

Anticipating your inventory flow is a science that retailers strive to master. However, you will make mistakes — some big ones too — but you can learn from them as well. In summary, if you are able to get a better handle on your ordering, you will have a more profitable business to show for it. And profit margins represent the delineation that all business ventures endeavor to attain.

See AlsoSupply and Demand: Keep Your Logistics Plan from Draining Your Budget

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