I was in a store a few weeks ago and came across a product my company used to produce and wholesale. A wave of nostalgia came over me as I remembered sewing wallets and bags in an unairconditioned garage in Pasadena in the height of summer. For years my wife and I would fill our car with goods and travel around the country in search of storefronts we thought looked interesting and, with a pretty impressive success rate, just walk in and ask for the buyer. I don’t believe we have shipped that particular item for at least 6 years and yet there it was on a shelf. AT FULL PRICE!
Far too often, I see small retailers refuse to take a hit on a product. Sometimes, as the retailer, it is frustrating. I have had products hit my sale rack that I was sure were going to be big sellers. Even worse some of these products proved to be big sellers in other markets but just didn’t resonate here. I know it’s easy to look at the big guys and argue that they are getting volume discounts, so even their deeply discounted sales are, typically, still generating something on the sale. Who cares? That isn’t you and those aren’t your margins.
If this business had been willing to slash the price from $50 to $20, they would have “lost” $30 but they would have had $20 to put back into inventory that had proven itself and gained back floor space that has been clogged for 6 years. In a perfect world, where they made the right choices, their inventory would turn over an average of four times a year, and with no mistakes they could double that $20 each time. Twenty four successive turns literally ends up being in the millions.
Lets talk about a more realistic rate of return like 30% and three turnovers a year. Any retailer that’s stayed in business for six years is good enough to hit that number. In this scenario owners aren’t taking anything out but the other associated costs with making the subsequent sales are taken into consideration. You would end up with $1328 on your original $20. Now imagine you have, as most mature businesses do, $10,000-$15,000 in assets you could liquidate to get that cash working for you again.
I do want to be clear that I hate sales as promotional tools and I will venture into that territory in depth in the near future. To me, sales are rare but necessary evil cash flow generators and markdowns fix mistakes but you need to fix your mistakes!
If something isn’t making you money, it’s costing you money. It could be a camera lens you aren’t using, a table saw or a size run of Levi’s but I can almost guarantee you there is something you are holding onto because you “know” it’s value but it doesn’t line up with what customers would pay for it. The longer you wait around for the right customer to walk in the door, the more expensive of a mistake you are making.