Managing Obsolete Inventory

For many dealers, there are two sides to the showroom. The A side comprises all the hot sellers, while the B side comprises inventory that just doesn’t seem to move. Fortunately, strong performance from the A side often results in a pleasing cash flow spike during peak selling season. But a lot of that much-needed cash now has to pay for the B side of the showroom. That’s not a very good reward for a prosperous season, is it?

“It’s easy to turn cash into inventory, but not always so easy to turn inventory into cash,” says sales and marketing consultant Rick Barrera. “You have to get obsessive about moving inventory—especially slow-moving and obsolete inventory. When you eliminate interest cost and free-up floor space, your profitability really changes. And it creates quite a bit of excitement in your store.”

Barrera says slow-moving and obsolete inventory should never exceed 5% of your total inventory. A variety of circumstances can result in excess inventory. Some are at least partially out of your control, such as unpredictable weather patterns or an economic downturn in your market. Others are well within your control, such as poor forecasting and/or purchasing. If you happen to overdo it a bit on your early-season orders, you need a strategy to unload any slow-moving inventory before it becomes obsolete. When the inventory becomes obsolete, it becomes that much harder to move.

Start early with a plan

Always be thinking about selling slow-moving inventory in-season—before it’s too late. Generally speaking, outdoor power equipment retailers have a bell-shaped sales curve. Sales gradually climb until about mid-season, and then start to wane as winter approaches. You want to begin focusing on slow-movers at the peak of your bell curve, which is mid-season. That way you have enough time to make some adjustments and get inventory moving before the next model year approaches. If you wait until October or November, that slow-moving inventory is now obsolete.

Focus on it

The emotional tendency is to ignore inventory that isn’t moving, but you should actually do the opposite. You must focus on this inventory and create some excitement around it. Build a display with nice signage. Offer demos. This is especially important if the model was once a hot seller, but is currently experiencing a slowdown in sales, leaving you with some extra inventory.

Whether you’re a three- or 10-person operation, you may want to consider assigning someone to slow-moving inventory. It’s this person’s job, at least once a week, to go through sales histories and the floor plan to identify which models aren’t moving, and which have interest charges bearing down on them.

Control stocking methods

This is especially important for handheld product. When a new shipment of “Model X” comes in, it’s a natural tendency to stack it on top of the inventory you already have for that model. What happens? The units you already had in inventory, which are probably coming a lot closer to being due, are “shoved to the back.” Make sure all employees understand the importance of bringing the existing inventory “to the front” so it is sold first.

Discount it to a price that will move it in seven days

You must use your judgment on this one. The price you come up with may even be below cost, but that could be worth more in terms of total cash flow when compared to carrying the unit through to next season.

Sell it online

Today’s consumers are using the Internet to buy and sell many different products, including power equipment. It’s worth a shot.

Barter it

You buy all sorts of products to keep your business running, such as office products, gasoline, advertising, uniforms and shop supplies. See if any of your vendors might be interested in doing a trade for that tractor you can’t seem to sell.

Triangle trade it