How to Approach Your Inventory Management After Holiday Sales
If you are like most retailers, the holiday shopping season is your biggest and busiest time of year. So, after the holiday rush, weary retailers are often left reeling and ready for a break. Spend some time with your family during those special holidays and take a little break, but make sure you’re ready to take advantage of the important opportunities that come just after the holiday shopping bonanza.
Holiday sales play an important part of clearing inventory for most retailers,
often accounting for almost 20% of annual sales. This is traditionally done through store wide sales, and even bigger discounts on selected products. Online sales are playing an increasingly important role, but the truth is
90% of retail purchases still happen in store. Once the holiday season is done you need to take a more targeted look at your inventory, your sales history, and your goals for the next year. Getting a jump start on tax season doesn’t hurt either.
In January, you can expect business to return to normal, but during the first couple months of the new year there are still some special factors at play that mean your business needs to be ready. From analyzing sales, to a post-holiday clearance plan, the return rush, and getting started with early tax prep the next two months can shape the year that follows.
Applying the following four strategies will help make sure that you are ready for the new year and the opportunities they present:
1. Analyze your holiday (and annual sales) - calculate your cost of carrying inventory
After the holidays is a perfect time to calculate your sales for the year and to figure out what the cost of carrying inventory was for the last year and might be for the next year. This will be particularly important for the next strategy, your post-holiday clearance plan. According to REM Associates, over 65% of businesses don’t actually calculate their carrying costs. Estimates fail to capture the complete picture and can hurt your decision making. So to get the best results, you are going to have to do a little math. Don’t worry it won’t hurt…much
You can
calculate the cost of carrying inventory by finding the sum of the following:
- Cost of Money - how much did you invest in the inventory, how has the value of the dollar changed?
- Taxes - what kind of taxes are you paying for the purchase of inventory?
- Insurance - how much does insurance for the inventory cost?
- Warehouse Expenses - how much does it cost to store the inventory?
- Physical Handling - how much does it cost to move or perform upkeep for the inventory?
- Clerical and Inventory Control - what are your expenses connected to managing and monitoring inventory?
- Obsolescence - is the inventory still useful or has it become obsolete?
- Deterioration and Pilferage - has the inventory been damaged or stolen?
Once you’ve calculated the sum of these costs, your inventory carrying cost is, “expressed as a
percentage of the cost of the inventory items. For example, a company might express the holding costs as 20%. If the company has $300,000 of inventory cost, its cost of carrying or holding the inventory is estimated to be $60,000 per year.”
With this number in mind you can begin to see the value of eliminating inventory you really don’t need. It will help you stop thinking about older inventory as something you might be able to get a return on in the distant future and make you realize it is actually costing you money to hold on to it. Understanding the carrying cost will also allow you to figure out how low you can go with sales on the inventory and when it is time to donate it or write it off.
Having trouble calculating these costs?
Inventory management and tracking solutions can be a great tool to help you capture the cost of carrying inventory. For example, barcode based systems can help you understand how long items have been in the warehouse and how much space they take up, where and when they’ve been moved, and how the value of the item has changed over times and through changes in sales price.
2. Be prepared for the post-Holiday rush - returns and gift cards
The post-Holiday rush is nothing like
the craziness of holiday shopping, but it isn’t quite back to normal. Make sure you are ready with staff for increased foot traffic and some potentially trying times. Customers coming in after the holidays are either super deal hunters (looking for clearance), gift card recipients who may or may not be thrilled about being in the store, and people who have come in for returns.
Give your employees a little break between Christmas and January, try to bring in more seasonal help for that week, so your regular employees can get a needed break and be fresh for the new year.
Offer
incentives and rewards for employees so they feel motivated to be their best selves and do their best customer service. The post-holiday rush is often full of people who will generally be “difficult” customers. They might be annoyed about a return or new to the store. Make sure your team is ready to handle them with patience and smiles.
Convert returns into sales. A good interaction with someone making a return can lead to a sale. Beyond that, people making returns (especially when the return comes as store credit) will be looking for deals. They may not be happy with what they got for the holidays, but now they are in your store, they have money (or credit), and they probably want to find something they like. A good bargain will help seal that deal.
3. Have your post-Holiday clearance plan
If the holiday shopping season is the time for sales, after the holidays and before the new shopping year starts (which is slightly after the actual new year starts), i
t is the time for clearance. This is a perfect opportunity to put big markdowns on products that aren’t moving to try and get them out the door.
January is the time for clearance. You can start with a 30% markdown and a customer alert, but aggressively lower prices until these items sell. Keep in mind, you are likely to have increased foot traffic as people come in for returns, and while many of these people are looking to go home with the cash, they can easily be enticed to see if they see big, big savings.
Remember, this isn’t a store-wide sale, this is targetted removal of items you know won’t go later.
If they still aren’t moving you can give them away and make them a donation tax break, or you can just get rid of them as a write-off.
4. Get a head start on tax prep
No one likes getting ready for taxes. Most of us put it off as long as we possibly can. The end of the year, when you are calculating inventory levels and figuring out clearance is the perfect time to get a head start on tax prep. As you go through year end analysis, keep in mind what information and documentation you will need for your taxes, make sure you get them organized.
More than just sorting and organizing, you can also start crunching your numbers and if you are really organized and ambitious you can actually do your taxes and get them in early. You can pay your taxes (or get your refunds) earlier, if you submit your documents earlier. The advantage of early pay (or receiving) is that you can factor it into your budget quicker and you can make sure to adjust and account for it, especially if your tax burden is greater than expected.
As with calculating inventory costs, when it comes to tax prep,
inventory management systems can be a huge help. Using a barcode based system often means you have the information and documentation you need on hand and easily accessible.
So, Happy New Year, and as you start 2016, start it right and get the most out of the next few weeks and months. Starting the year right often leads to a great new year.
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