For years, we have been advising retailers to cut back on unnecessary stock. Why? In the past it has merely been in the interest of increasing profits. But, that’s all about to change.
Disruptive technology is a technology that forces a market to change its habits
Large companies, like Walmart and Target are prevented from engaging in ‘disruptive technologies’ because they are likely to be punished in the stock market. As a result, recent changes through innovation have mostly been undertaken by start-ups, and small, privately owned businesses. And when that happens, large companies will be forced to get in line.
The curse of knowledge
Eventually, you will experience disruption in your organization whether you are prepared for it or not. Mark Twain said, “A cat that sits on a hot stove will never sit on a hot stove again”. In fact, it is more than likely that cat will never sit on ANY stove again. That cat, as it were, simply overlearned from his experience.
It’s an understatement to say, ‘humans (and cats) are creatures of habit’. When we encounter change, our first inclination is to refer to our habits, and if the change appears to be disruptive to our habits, regardless of its promised benefits, we automatically take the path of least resistance; even though doing the same thing over and over again will eventually result in failure. That’s when the real disruption occurs.
We may not be able to solve current problems with past experiences
The average time it takes a bill to make its way into a law is 263.57 days. During the period 2013-2014, there were 18 major changes in the Obamacare bill alone. In the time it takes you to read this article, you will have made hundreds, or even thousands of decisions without thinking consciously about most of them. The weight of these decisions are ranked based upon past experiences. The speed in which change comes about has a direct impact on the success of those decisions, and these successes or failures are amplified by the duration of time you hold outdated assumptions to be true.
For years, retailers have held onto five highly suspicious, critical assumptions:
- Business will be at least as good as it was last year
- I will service a similar number of customers
- An abundance of inventory makes the store look successful
- The current net profit structure is sufficient to sustain my business
- Our suppliers will act in our best interest
The odds are that all (or most) of the above assumptions are not going to remain valid over the next 12 months; and those of us that are sitting on hundreds of thousands, if not tens of millions of dollars in attractive, unsaleable stock, are going to be in real trouble. For every $100 worth of unsaleable stock, you are looking at a minimum of $30 in profits you will never earn.
To find out what’s selling and what’s not, you only need to look at the transactional data coming from your POS, and quit buying more stuff that adds to the pile of already unsaleable inventory you have on hand.
How do you get rid of unsaleable stock?
The answer as to how you can get rid of lazy stock is simple: just ‘get rid of it’. Put a smaller price on it, but whatever you do, don’t set up one of those ‘SALES’ tables. Everybody knows the stuff on those tables is composed of junk you can’t get rid of. Mix them in with your other inventory, put a red sticker on them and place a sign in the store that reads:
RED STICKER SALE
All red sticker items are 50% Off
I guarantee you that everyone who sees that sign will be looking for those red stickers. And when it’s gone, whatever you do, don’t let your supplier bring more of the same stuff back into your store.
But my store will look picked over…..
No it won’t. Not if you take out a gondola or two and readjust the vertical space between the shelves. You can also use some decorative filler that will keep the stores looking full, and won’t cost you anything.
Nine Habits That Lead to Terrible Decisions by Jack Zenger and Joseph Folkman
Source: Harvard Business Review
- Not anticipating unexpected events
- Remaining locked in the past
- Having no strategic alignment
- Lack of technical knowledge
- Failure to communicate the what, where, when and how associated with decisions
If you’re one of those that truly buys into the government’s line that the unemployment rate is 5.5%, and the economy is getting better; or you believe some analysts that are warning us that we are about to face a severe downturn in the economy, don’t get caught with stuff you can’t sell.
And even if the sun comes up tomorrow, the world is beautiful, birds are signing, and we’re all sitting around campfires with ISIS, Russia, North Korea, and Iran, holding hands and singing Kumbaya, even then, cutting back on unneeded stock will make you even more profitable.