July marks mid-summer. With the rainy weather we have had, it doesn’t seem much like summer. If you are a retail establishment, perhaps you’re overrun with summer gear, clothing, furniture or toys. What’s the best way to move inventory – why having a sale of course!
A sale not only helps to reduce inventory, but also can bring in a flux of cash to purchase needed merchandise for the upcoming fall season.
The key to having a successful sale is to still make a profit margin on inventory as you begin to clear out your merchandise. As the season progresses, those margins will decrease, but so will your inventory.
Unsold inventory on hand at the end of the year must be taken into account when it is time to calculate your taxes.
That unsold inventory has a direct impact on the amount you will pay in taxes.
Understanding where you are in regard to inventory begins with accurate recordkeeping. Without knowing how much product you have on hand, you don’t know how aggressive to be in your sales discounts.
Business owners don’t have a crystal ball to see what items will sell and which ones will sit on the shelf when going to trade shows and commercial marketplaces to purchase merchandise for the upcoming season. But, they take a risk based on past experience and order items they think their clients will purchase. However, during this process – they always don’t hit the mark. Identify which items may not be selling as well and create a special section with deeper discounts.
Review your order system and processes for ordering and reordering merchandise. If a summer item sells out by the end of June, it may not be in your best interest to reorder that particular piece of summer merchandise. Many distributors have minimum order amounts to place an order and reordering may cause the business owner to order more than they will sell or need. Customers will learn to shop early in the season for the best selection.
Be careful of bulk purchases. It doesn’t matter if the inventory is stocked in-house or at a supplier’s warehouse, once you purchase items they show up on your balance sheet.
Evaluate multiple suppliers. In order to keep your business, existing suppliers may be willing to negotiate purchasing terms or lower minimum order thresholds. By not relying on only one supplier, if a hard to obtain item is sold out, the business owner has additional options to keep those in demand items in stock.
So as you create your next sale we recommend these steps:
Remember…inventory left in stock affects your bottom line at tax time
. Be sure to read Part II
of this blog for creative ways to move inventory at the end of the season and throughout the year.