Time for Tough Love with Your Inventory?

One of the keys to running a profitable online store is inventory turnover. The faster you sell, or "turn over," your inventory, the more profitable your store will be.

Unfortunately, one of the biggest problems I see when consulting with online sellers is "inventory bloat"—a build of up stale inventory sitting on the shelf waiting to sell.

This has been especially true over the past few years. With tightened business credit, and reduced buying power, many online merchants have been forced to ride the line between purchasing fresh, new merchandise and trying to squeeze as much profit margin as possible out of existing inventory.

But if your inventory isn't selling, it's not contributing to the bottom line. And that's why it's time to take a tough love approach to your product line!

Lose the bloat to gain profits

Inventory bloat affects e-tailers of all sizes and in all niche markets. Compared to their offline counterparts, online sellers often enjoy lower storage overhead costs, making it easy to allow unsold merchandise to build up over time.

But being overstocked with products that aren't in demand puts a stranglehold on your profits. Every dollar you tie up in inventory that's not selling is money that could be reinvested in sourcing higher-profit items.

Inventory bloat can also cause a psychic drain for business owners. Watching your inventory fly off the shelf is exhilarating. Looking at the same pile of unsold inventory for months on end can be demoralizing and nag at your product-sourcing self confidence.

Not to mention the space crunch for people who store inventory in their homes. I've had clients come to me so overloaded with stale inventory that they'd filled every remaining inch of their house with products! It's definitely not a good way to live or run a business.

Make time to deal with inventory management on a monthly basis

10 tough love tactics

So whether you're drowning in stock, or think you're doing a good job of managing your inventory, it's time to put your product line to the test with these 10 tough love tactics:

1. Review your sales reports. The first step in a taking tough love stance with your inventory is to take a hard look at the numbers. Inventory turnover is measured by the number of times your inventory sells during a 12-month period. An item that sells once a year has higher holding cost than one that sells monthly or quarterly. The numbers don't lie. If it's not selling, set it aside in the "to go" pile.
2. Make time to manage inventory and clear out the dead wood. For solopreneurs busy with running their business on a daily basis, clearing out old inventory often becomes a low priority—something to "get to later." Unfortunately, later never comes and inventory bloat gets out of control. You need to make time to deal with inventory management on a monthly basis.
3. Look at the 80 percent. Remember, 80 percent of your profits often come from 20 percent of your products. Looking at your inventory, category by category, will help you pare back where you need to, so you can beef up where the profits are. What are your best-selling products? These products should be your focus. Clearing out dead stock in slow-selling categories will enable you to redirect cash flow into more profitable areas.
4. Don't get emotionally attached to the products you sell. When you've invested time, money and emotion into deciding on a particular product or product line, it's easy to want to "give it a little more time." You need to make your inventory decisions based on the numbers and on market demand. Take into consideration your experience as well as your gut feeling, but don't hang on to old inventory based on emotion.
5. Keep the pipeline primed. If you don't have your inventory pipeline filled with new products at all times, you'll be more hesitant to clear out the products you do have in stock. Make sure you're bringing in new inventory to test market at all times. This will keep your stock levels high and your product line fresh. And you'll be excited to let go of merchandise that isn't selling and replace it with merchandise that sells!

Maintaining inventory that you can sell all year around can breathe new life into a product line

6. Beware of the collectibles "gotcha." Collectibles sellers can hold on to inventory for years, hoping that someday the right buyer will come along, find that perfect item and bid up the price. But keep in mind, there's a cost to listing that $49 figurine on eBay for months, or even years at a time. Every time you relist an item and pay new listing fees, the profit margin on that item declines.

   I've seen eBay sellers list the same $9.99 item over and over again for one, two, even three years. At that point—even if the item does eventually sell—they've paid much more in fees than the item is worth.

7. Be realistic about seasonal inventory. There are a few categories where holding inventory over from one season to another might make sense. Christmas ornaments, for example, sell all year online. Not only will you sell ornaments in July, they'll also be in demand again next Christmas.

   But you still have to pay close attention to the "dogs" in your product line. That cheaply made ornament that didn't get any interest or any sales this holiday season is likely not to do well next year, either. Keep the Swarovski crystal ornaments, though, they're classic. The junk ornaments need to go!

8. Sell it globally. Maintaining inventory that you can sell all year around can breathe new life into a product line. For example, winter coats that sell in the U.S. from September to March will then be in demand during the Australian winter in June, July and August. But if you don't sell worldwide, hanging on to last season's coats until next September is a no-win situation.
9. Have a merchandise-to-model match. Does the product fit your current business model or future direction? If the answer is no, it needs to go.
10. Don't stay overstocked in an already saturated market. If you're overstocked with inventory in a saturated market, you must either find a new way to reposition your products, or cut your losses and move on. Once the market has become saturated for a particular product, it will be a long time before demand outstrips supply.

Declining prices and razor-thin profit margins are another valid reason to clear out inventory. If you purchased new, in-season product during a peak buying season but prices have been in a steady decline, don't wait it out. Much like the stock market, you make your money in retail when you buy low and sell high.

As you can see, by following these 10 tactics, it's easy to be objective and take a tough love approach to your product line. And when you do, you'll find yourself running an in-shape, profitable operation with "muscle" in the right categories.