October 07, 2014

Bloated Inventory Levels

Articles about retailing, e-commerce, and cataloging frequently mention inventory levels. If you are managing a failing business, customers aren't buying merchandise at the level of expectation of your merchandising/inventory team. This requires you to liquidate merchandise at, say, 40% or 50% off. This destroys profitability in the short-term, and it destroys the customer base in the long-term (customer is now trained to pay $29 for a $49 item).

So it's easy to talk about inventory levels, and it is easy to beat up the merchant in this cartoon - it's her fault.

You have two problems when inventory levels are bloated. Trust me, most in the organization are focused on the first issue - getting rid of the stuff that isn't selling.

The second problem can be solved by everybody, yes, everybody. Everybody can fix the business for the upcoming year. Here's a starter list:
  • Buy conservatively - if business has been trending -10%, you forecast negative growth next year. Oh, I know, that creates a whole bunch of fixed cost issues ... so communicate your plans clearly ... but what you're fixing here is next year's inventory problem. You won't be bloated next year.
  • Plan the marketing budget accordingly. This might be a place to over-spend, especially if inventory is planned conservatively ... you'll be much more profitable without all that liquidation activity, so spend that money on marketing to find new customers who will appreciate your new merchandising direction.
  • Carefully analyze the customers who buy from your new merchandise assortment. Are they your core customer? Are they new customers? When they buy from the new merchandise assortment, do they cross over and buy the product that failed in prior years, or are they switching permanently? And I realize these questions are futuristic - but you can also analyze the same issues in reverse in the current year - so do it and figure out any success story you can find - NOW!
  • What are customers buying at above-average rates? In the short-term, capitalize on those items in email marketing. Next year, have an email marketing plan for new items that are working ... think of it like a tournament, and as new items start to win, you advertise the living daylights out of them. Your marketing team is now there to support the merchandising team, these are desperate times, get busy!!
  • Reward anybody who sells through product. Of course, you don't want buyers seriously underbuying product, but you must set up a reward structure that focuses everybody on the goal of selling through merchandise.
  • Align each buyer with somebody in marketing. The marketer is accountable for supporting the buyer. The buyer is responsible for teaching the marketer who should buy the product and why.
  • Experiment with social media. We all know that if your customer is > 35 years old, you're generating close to $0 via social media, so there is no risk here ... at all!! Experiment in areas where you have no risk.
  • Get your rear end in the mall, and document everything your competition is doing. Document pricing, document creative strategies, presentation strategies. Watch what customers are doing. Then adjust your tactics accordingly. Your competitive intelligence team should not just be producing Powerpoint slides - no - they should have your merchants, creative folks, and marketers with them on field trips into the mall.
  • Ignore all theory. Who cares about trying to steal market share via omnichannel strategies? You are trying TO STAY IN BUSINESS! The last thing you need are strategists pushing an agenda that benefits the strategist. Fix the basics. I worked at Nordstrom when the basics were fixed ... there was no need for strategy, profit rained down from the sky when the basics were fixed. I also worked at Eddie Bauer in the 1990s when basics were ignored and theory dominated the discussion. That didn't work.
  • This is not the time to try "aspirational creative designed to inspire the customer". That's for two years from now. For next year, go with what you know works, plain and simple. If your boat is taking on water, you don't spend time talking about what a $2,700 GPS system might do for the boat, you stop the leaking.
I know, you think I'm babbling, but that's a simple and small list. Get busy! Bloated inventory levels destroy businesses ... I worked at Eddie Bauer in 1999 when we had a 3% sales drop in our online/catalog division and posted record profit because we patched all the holes. I know, I know, you want to be "strategic". When inventory levels are bloated, there's no time to be strategic. Nope. Instead, you must spend a year fixing things, you must spend a year being disciplined. Do that. Now.