Think You Should Hang Onto Old Inventory? Think Again

I RECENTLY SPOKE WITH a jeweler who I have been helping with his QuickBooks for many years. Sadly, he learned all he knows from his father who owned the store previously. Why sadly? Because Dad was old school: KEEP INVENTORY UNTIL EITHER OF YOU DIE FIRST.

Every year, I’d pull up his GMROI report in The Edge and show him his terrible turn and how much aged inventory he had. I told him that aged inventory shows up almost dollar for dollar with accounts payable debt, credit card debt and bank loans.

He never listened to me, which is common. I can’t outdo Dad’s 1950 ways of doing business, when margins were 65 to 75%.

So, a year ago he joined two groups. One is Buyer’s Intelligence Group (BIG), similar to Edge Retail academy. Their software pulls reports every night, showing what’s old and what to reorder.

I don’t remember the name of the jewelers group he joined, but it’s similar to the Scull group I was in when I had my store. 12-15 jewelers in one group, scattered across the country, share financials and marketing. Twice a year, ALL stores meet for a few days in the city of one of the members. The jewelers go to the member’s store and critique it and tear it apart.

These two groups know merchandising. He now reorders EVERY MONDAY. He buys what will sell by price point and quantity.

He also got rid of aged inventory. His old/aged inventory now is only 20% of total inventory (the same amount that Dick Abbott of The Edge told me is right).

I then asked him an important question: “What is the group’s definition of aged inventory?”

Ready? 365 days.

That’s right, they get rid of old inventory once it reaches 366 days. OUT IT GOES.

This is his first year in these groups, and they got him to make a special case with anything over 366 days. All items are discounted 50% off everything. The sales staff gets special compensation/bonuses for selling from this case. During December, the staff took customers to this case first! The results:

A. His sales went up 30% for the year.

B. He has almost ZERO debt.

C. He has more cash than he’s ever had.

D. He gave out bonuses and BIG raises to the staff.

E. He reorders every Monday.

F. He dumps or returns merchandise to vendors after 366 days.

Since he had been in the group about 11 months, I asked him if he had any newer members. He said yes, one had just come on board. I asked him what this new member said when they told him old/aged inventory is 366 days and get rid of it. The new member just argued with them, saying things like, “You can’t sell from an empty wagon. Someone will buy it. You guys are crazy.”

All 12 members chewed the new member out.

So, at the end of our conversatoin, the jeweler told me, “David, they told me everything you’ve been telling me for years. It just took a group of 12 jewelers to tear me a new one to get me to do it, which was also different than what my dad was doing. I am sooo happy!””

So, go ahead, let’s hear your arguments.

David Geller
Director of “out with the old, in with the new” stuff