One of the realities of doing business, is that there is a good chance that at some point you are going to have some surplus stock. While there are some products (in some industries many products) which may be timeless, and be in consistent demand, there are also quite a range of products that are just really flash in the pan.
Often when new products come out, you will be able to profit well from these products. However the longer they are available the more they become mainstream the less effective they are in your business. There will almost always come a time when you have bought the stock, but the product is just not selling at the same levels that it once did. What you do when this happens is the most important part of the process.
Losing Money Might be Unavoidable
The first step in the process is understanding that there is a very good chance you may have to make a loss on some of the products. However this comes as a doubled edged issue, in regards to how much you will loss. The sooner you realize that you are going to have trouble selling the product at the regular price, the less of an impact you will likely face.
If you can realize early in the product lifecycle that demand is slowing, you can of course better prepare. It may be more advantagous, to lose a sale or two, then to have a dozen pieces on the shelf. For example if you had a product you bought for $1,000, and sold for $1,200. It might be easier to let go a sale or two, and lose $400 profit, then it would be to be holding $12,000 worth of stock on the shelf for 6-12 months, that you may end up selling below cost anyway.
Make It Easy To Order
If you are able to see trends early in the life cycle of a product and decide against holding large amounts of stock. There are other options. The best one may be to hold a single display or demo unit. But then make the ordering process easy for customers. Even to the point where they may be able to order the product in your store, and you can have the supplier drop ship the product to your customer's address.
Realizing To Late
There will almost always be a time or a product that you realize you just do not have the sales to coming in to clear the stock that you still have on the shelf. This is when you really do face the challenge of just how much are you will to lose to clear the stock.
Your first consideration in this is when you clear the stock and how much you expect to lose.
- Clear now for a small loss, is your best chance to maximize return, increase your cash flow now, and also avoid holding thousands of dollars of obselete stock. If you have 12 items worth $1000 each in stock it would be better to sell them now at cost price, then to hold onto them for possible sales in the future. So you end up losing out on $2400 profit but you break even.
- Waiting 3 months and holding the products at their regular price, may help to achieve an extra sale or two at the original price. But the longer products are held the more chance that there will be something to compete at a better price. Meaning you need to drop your price even more. You might sell 3 at $1200, and then need to compete with another product so drop your price to $900 on the rest. In this cas you do only miss out on $2100 profit, however you actually are down $300 loss.
- Another alternative is waiting even a month may see a competive product, meaning you have to drop your price to $900 on the lot. This would mean a loss of $1200 on top of missing out on $2400 in profit.
Where To Clear Stock
There are many options on where and how you can clear your stock , if discounting it in your store is not preferred.
- Ebay - This can be a positive or negative experience, just depending how much in demand your product is. Along with how many other are selling the same product and if it is new or used.
- Pawn Shops - The amount of new stock that is appearing in pawn shops is to my eye increasing. Often it is mostly low value, things like phone covers, and sunglasses. But you never know what might be the options.
- Warehouse Clearance Sale - Another potentially more advantagrous option could be to join with a group of other businesses and set up a weekend clear out of all the stock that you want to get rid of. This can be good in many ways other then just clearing the stock especially in spreading the cost of promotion.
- Auctions - Especially for high priced items, selling at auction can see a quick and easy disposal for you. However this can lead to much lower returns.
Choosing the meathod which is right for you is going to be your biggest challenge, as you are going to want to maximise your return. While minimizing the time that you spend working on it, as you are likely to already be losing money and you don't want to be throwing more valuable time after the lost money.
Remember Your Cashflow
The most important part of holding stock is to be aware of how your stock turnover happens. If you are holding stock you need to be aware of how often this stock turns over. Not knowing this and being oblivious to stock held on shelves is going to end up leaving you with stock left over. Stock that you cannot sell for a reasonable profit, and a need to heavily discount your stock.
Keeping a good eye on what stock you have, how it is selling and making the most of discounting early, while a profit is still possible is your best option. However the biggest benifit to watching you stock closly is keeping an improved cash flow cycle. A cycle where you don't have thousands of dollars of obselete stock on the shelfs with the potential to either sell well below cost or even end up writing it off as a complete loss.