The other day I walked past a cosmetics stall. As a woman in my 30's who uses cosmetics and has some disposable income, I'd say I was probably this stall's target customer and if there was something I fancied, I might well have bought it, but as I got closer I noticed that the stall - several tables long, was covered in cosmetics, every cosmetic I ever could have dreamt of with a large proportion on sale. I felt overwhelmed and I walked away without even approaching the stall to have a proper look. And this got me thinking about stock and the risks of holding too much.
So what are the risks of holding too much stock?
There's the risk to your cash flow,
If you hold a lot of stock, you've tied up a lot of cash in something which you're going to have to shift pretty quickly if you need to get that money back in a hurry.
and the risk to your profit
The more stock you hold, the more sales you'll have to make to sell everything, and arguably the longer that could take. Every time you unpack and pack up that stock, you face it getting damaged and generally losing it's nice shiney-newness, meaning you might not be able to sell the stock for it's full price in the future, or at all. Obviously losing stock because it's damaged, old or un-sellable is bad for your profit, as can be running a sale. Remember that every pound you discount by is one pound less profit for your business.
So, what can you do about it?
1. Think about how many products you actually want to sell
Is there a way you can specialise? In terms of attracting the right customers and making sales, the cosmetics stall I saw might have done better if it specialised in nail varnish or lipstick or something which it could be the absolute best at. As it was, it was trying to sell every cosmetic to everyone, and that didn't work, at least for me. From a stock point of view, specialising means you can hold fewer products in stock, meaning less cash outlay for you, as well as other benefits like being able to target your marketing more succinctly.
2. Restrict options
If you sell something which comes in different size or colour options, consider whether you can restrict how many you have in stock. I was recently speaking with the owner of a great local swimwear company who told me that sizing costumes as small, medium and large meant she had to hold half as much stock as if she held every UK womens' size (which could otherwise mean holding stock in a size 8, 10, 12, 14, 16, 18... and so on).
3. Order just in time
Can you use Just In Time ordering? This means only ordering stock (or products or components required to produce your product) when a customer has made an order or when stock is getting low. It can be a difficult balancing act when getting delivery times right for your customers and ensuring stock you need is delivered by your suppliers on time, but Just In Time ordering can work really well for certain businesses with the added benefit of helping with cash flow.
4. Hold stock on sale or return
Depending on what you do, it might be that you can hold stock on a consignment or "sale or return" basis. This means you don't pay the supplier until you've actually sold the stock and this can be really helpful in terms of having products for your customers to see and buy, whilst minimising your cash outlay on stock. In fact just this weekend, I met a lovely startup using this kind of business model, and I'm sure the cosmetics stall I saw the other day could have taken a leaf out of their book.