California Apparel News

When does inventory expire? So many smaller manufacturers sit with aging inventory for two, three or, sometimes, four seasons before they decide to sell it off.

Even if they need cash to operate, these companies will hold on to excess inventory for a variety of reasons. They may feel selling old inventory will dilute their brand value. Or it could anger their retail customers.

If you have an ample supply of surplus cash, then you’re in good shape. But most companies don’t. Even with your profitable business, you may be tight for cash each month. There are several things you can do to easily manage inventory without adding cost: Count your inventory once a quarter.

If you don’t know it’s there, you can’t sell it—or ship it—and your cash is stuck in limbo.

Major companies that manage millions of units count their stock all the time. They’re constantly checking stock for accuracy. Many have staff whose full-time job is to check and count inventory. So, a small company spending four days a year doing a physical inventory is not excessive—and it can save cash. The more physical inventories you do, the easier they get, the more accurate they become, and your sales team and staff will know they can trust the inventory when they sell it and pick it. Sell off your excess inventory.

If it’s sold and shipped, you don’t need to count it—just count the cash in your account.

For surplus stock, first offer promotional-priced goods to your current retailers for reorders. That doesn’t usually get rid of the entire surplus, however. Your next step is to go to the off-price retailers. They typically pay on time, many pay a better price than the off-price wholesalers and you can usually ship them with a factor approval and an advance for their invoice. Sell them early in the season so you can get an order commitment from them, but ship them at the end of the season to protect your current orders.

Don’t worry that your regular customers will see your product in off-price stores. Everyone sells to off-price retailers, and, when properly managed, it has little to no impact on your regular customers’ business.

If you’re still not sure, then go shop the off-price retailers and take note of the brands they carry. If your full-price customer complains, you can sincerely say, “I need to turn my inventory back into operating cash so I can buy new goods, just like you.” And if they are still pushing back, politely tell them, “You carry brands x, y and z, and so does the off-price retailer. They sell them, and I need to sell them, too.” Don’t expect to sell all your overstock on your website.

I hear this all the time. Let’s say you typically sell 10 to 20 pieces of promotional goods each month on your website. If you have 3,000 pieces to sell, you need 12 years just to sell through that one style.

Sure, sell some on the website and make the extra money. But at the end of the season, sell it all off. The jobbers will be there in the end to pick up what didn’t sell by promotional price to your customers, the off-price retailers and your website.There are hidden costs in carrying too much inventory.

You need additional payroll for the staff to count it, move it and ship it. There are additional interest costs to finance the excess inventory. And there’s the cost of taking up stockroom space with aged inventory.Consider placing smaller production orders.

Paying more for some goods can reduce your minimum-purchase quantity requirements and reduce your risk by cutting down on your markdowns at the end of the season. Ultimately, this can save you money. I know this sounds counterintuitive, but if you do the math, you’ll see it does work. Some styles and product categories will recover their cost in season-end sell-offs. But other styles will sell below cost—and those are the styles to consider producing in more-limited quantities.

If you have a style that has only a 30 percent to 40 percent booking rate based on the minimum-purchase requirement, ask your supplier if you can pay a bit more per style for a reduced minimum. More often than not, your supplier will work with you. You’ll find that you can bring in about the same gross profit in dollars. And at season end, you will not have a big markdown on that style; you’ll spend less to buy the goods—which will keep precious cash in your business—and you’ll end up with less excess inventory taking up space in your stockroom.How do you know if you have too much inventory? Obviously, if your stock is collecting dust, you need to sell it off. But the rule of thumb is, if you carry more than a two-month supply of finished goods, you have too much.

So, if you ship 10,000 units per month and you have 30,000 units on your floor, then you have 10,000 units too many. Ask yourself: What makes up that extra 10,000 units? If it’s last season’s goods, then you need to just sell it and not think about it anymore. If it’s from your current season and you still don’t have orders for it, you need to just sell it off.

Remember, the two-month-supply rule doesn’t account for purchases you have on order but have not yet received. If your next order of 10,000 units is due in three months, you actually have a three-month supply of goods—two months in-house and one month on order—and since a typical selling season is three months long, you really do have enough goods. If your selling season is longer, then the rule of thumb still works because your customers’ orders due in the fourth month don’t need goods in-house now—rather, just on order.

When it comes to planning and carrying your inventory, the moral is: Protect your capital and you’ll be in business next year.Steven Goldman is the president of Apparel Industry Consulting Services and has more than 20 years of experience in managing and consulting apparel, home furnishings, jewelry and light manufacturing companies. He can be reached at SBGoldman@earthlink.net.