What is your Inventory Valuation
What is your inventory really worth?
How much you paid for it? How you priced it? Understanding the true value of your inventory is critical to your success. Retailers continue to make the age-old mistake of valuing their inventory based on what they paid for it rather than what they can sell it for. Understanding that your inventory is a perishable commodity is paramount. It is NOT a fine wine or a great scotch, it does NOT get better with age! Every day your inventory sits on the shelf it is in fact depreciating – day by day, dollar by dollar.
Grab that “90 day old $100 shirt” hanging in your store and ask yourself “what is this shirt worth” – forget the emotion that comes with picking an item, forget the cost, and definitely forget the “what’s wrong with people” attitude and just be real – what is this three month old shirt really worth? Now, I’m not saying that all 90 day old inventory is bad and has to go – I am saying your inventory has a best before date and you need to determine what that date is (in days not months) and when it expires, mark it down and get it gone!
BUT Dan, if I mark it down I will lose money…
If you haven’t already figured it out, I’ll let you in on a little secret: the money is already lost. Selling it, even at a gross discount, puts money back in the bank. Don’t think of markdowns as losing money, think of markdowns as a quick recovery method for already lost cash. Cash that you can use to buy NEW inventory that will sell before its expiry date.
So, what is your inventory really worth?
Whatever your customer is prepared to pay for it, right now.
Dan Holman is a certified Winning@Retail™ consultant with twenty-plus years of success in diverse business development, new ventures, business expansion and strategic sales planning.