How to Get a Grip on Inventory Clearance

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It’s already February and the end-of-season sales continue in Australia, with shop windows staged with naked mannequins and red tags, and promotional emails cluttering the inboxes of even the most diligent of deleters.

Yet even shopaholics have had enough of sales by now. Satiated with the purchases they’ve made over the last six months and still feeling the post-Christmas pinch, they’re happy to stick to the beach and stay away from the mall.  Meanwhile, families enjoying the last gasp of freedom before their vacations end will prioritize spending on stationery and school uniforms, not on summer season clearance product.

So it’s tough out there for retailers: for many, there is still a lot of end-of-season stock hanging around that has to be moved.

Getting through that inventory effectively doesn’t happen by accident, but there are lots of great processes to do it—useful for small and large businesses and equally important to both. If poor-sellers and clearance stock are not managed optimally, we can completely erode all the profitable weeks we’ve had earlier in the season.

So what do we do as retailers?

Plan Well and Follow the Numbers

It’s not easy. To begin with, retail isn’t an exact science! It’s fast-paced, fickle, relentless and energizing, and our stock situations don’t just happen overnight. They start at the time we set our budgets and leverage and weight all those metrics.

This includes weighing issues like total stock at cost vs total number of units actually required and balancing initial margin targets vs rising cost prices. The latter is coupled with a typical need to maintain retails, a dilemma in itself that sometimes leaves no option but to compromise design or quality, and in turn, can start to undermine a brand. These and other metrics inform our stock levels from the start, and throughout a season.

The more rigorous our planning, buying and trading processes are, the better. We need to understand key metrics and continually respond to variances against them: monthly ideal stock; budgeted sales and gross profit based on average selling prices; the maximum promotional/clearance burn that’s affordable; and lessons learned from the previous same season about color, sizing, timing, pricing sweet spots, etc.

It goes without saying that you need to have a genuine understanding of your customer and current knowledge of the local and (whenever applicable) global market. Only then are you ready to range, cost and sign-off on a season as optimally as possible.

Take Fast Action on Poor Sellers

As soon as you have stock on the floor beginning to sell, you have to be ruthless about identifying and taking action on slow sellers and dogs early in the season.

If your products don’t move after arriving at the optimum time, having three to four weeks of visibility, being well-merchandised and sold at a known reasonable price, then I hate to break it to you: sales just won’t improve without action!

You don’t have to go straight to markdown. Start with promotional activity to test whether it needs a minor adjustment or a significant change. Consider setting aside a permanent area in your store where you can offer “a special buy” or “last of the best-sellers”, something that doesn’t scream “sale” or “markdown”. Short of that, prominent placement anywhere in the story but with clear keen pricing can be enough. After all, bargain hunters exist at every level of the retail sector, and they will actively seek out great deals, not just at sale time!

Once the end of the season is in sight, analyze the remaining stock and decide if there is anything that can be carried over to the following season. There’s no point clearing it only to bring it back in four months later. It’s ideal to have a stock system that can cope effectively with these kinds of exceptions. Your systems should serve what you need, rather than constrain effectiveness by their limitations.

Plan for Markdowns

Clearance should be solidly planned before the end of the season, to include slow sellers and end of season product. Consider what promotional mechanics will be most effective and plan to execute them over multiple weeks, keeping them varied enough to maintain customer interest. The mechanics also should be informed by what you need to achieve with your inventory.

For example, multi-buys and bundle deals are helpful if you are heavy in units (multi-buys that include full-price stock will help to maintain margin). “Everything under” messages will also preserve margin on the lower-priced items already under that price point, as long as the deal is compelling enough to be effective.

Percentage off messages can be effective to drive foot-traffic but may be too blunt an instrument if your selection is wide. The best stock will still sell first and your problem stock remain a problem. Moreover, customers often have a hard time calculating percentages, which is why keen price points can at times resonate more.

Ultimately, the mechanics used in clearance should help to meet your most important budget metrics. Whatever you do, measure your weekly results against set targets to ensure you’re delivering, and if you’re not, adjust the plan!

Clearance Inventory: Timing and Presentation

Your stores always need to look good. There’s a time to present clearance at the front and a time to move it to the back, thereby keeping customer interest and lifting margin with newness.

Understand how your customers shop for deals (by size, price-point, subcategory,  hung or folded, etc) and what labor costs are needed to factor-in these movements.

Don’t forget that not all of your customers will be tempted to rummage for a bargain. So make sure you’ve got the right mix of new items so those full-price purchases then fold into the total for a stronger margin overall.

And whatever you do, don’t lose your brand identity or quality perception in the madness of sale season. Keep all your marketing collateral and communication on brand and authentic.  Keep the personality of the brand always at the forefront.

Tips for What to do With The Leftovers

Finally, here are some ideas for when your clearance stock is just taking too long to sell:

Move Stock to Other Locations
If you sell in more than one store, take advantage of different locations where sales are better. This obviously can be a costly and labor-intensive exercise, so you need to determine if it would be less expensive to go with a heavier markdown.

Give Staff More Discretion
Where you have great staff, consider giving store managers discretion on pricing and positioning of problematic stock. These “Manager’s Specials” can be changed as required, and among bigger chains, store and regional competitions with weekly challenges and rewards are popular ways to motivate staff to move products faster.

Use Pop-Up Stores
Pop-up stores in high foot-traffic areas in seasonal destinations or malls are a great option. Shoppers love something new, and mall operators are often happy to have someone fill an otherwise empty area for a limited time.

Use Your Website
The online world is a treasure trove for bargain hunters, and basket size and total spend often exceed those of full-price transactions. So it’s worth the effort to target and personalize your website with dynamic online exclusive deals.  Consider when to stop replenishment of slow and clearance lines before you set up your online deals. There’s no point restocking stores with items that don’t sell; better to keep the remainder unfragmented in your distribution center and sell it online from there. It’s vital, however, that your website delivers a great customer experience.

Selling Remainder to Discounters
If everything you’ve done to clear inventory hasn’t brought you to your desired stock position, and you do not operate an outlet store of your own, there are third parties who will take your excess stock at a significantly discounted price, and if necessary, relabel it and sell it in a future season. This may be preferable at times to having that stock holding on your books, even if you only recover your costs. It may pose a brand perception risk, however, if the lines are readily recognizable.

Charitable Donation
There are also fantastic charities around who work to clothe families while also raising money from the sale of new and designer lines specifically.  If an option exists to write off styles or blocks of stock, while supporting a fantastic cause, that can be a gratifying way to clean up the end of a season, too.

Conclusion

Retail is both energizing and pressured. That’s part of its charm. Just like people, businesses often just do what they have always done, whether there are good process and robust thinking in place or not. Challenge, growth, curiosity, and thinking outside the square are essential to succeed in this ever-changing environment. Happy selling!

About the Author
Bronny Jacobsen has more than 20 years of experience in developing products for Australia and New Zealand’s most recognizable fashion retail brands. Bronny joined Pumpkin Patch in 1997 as a product manager for the company’s buying/design team. In 2007, she was appointed as General Manager-Merchandise, taking overall responsibility for sourcing, purchasing, production and pricing of merchandise for all of Pumpkin Patch’s markets. Bronny currently serves as Head of Product-Apparel for Rivers, one of Australia’s oldest fashion brands.


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