Old Dead Beat Inventory is the same as Old Dead Beat Customers
I have been harping for you to unload old inventory, the killer of a
jewelry store.
A few people have emailed back and two big subjects keep coming up:
-
“David, you’re wrong. This stuff is not “old”. These are beautiful
blue sapphire and diamond rings, they are beautiful. During this
economic downturn the average dollar sales has dropped, but it’ll
come back. Why dump it? Someone will buy it, enjoy it and I’ll make
the profit then.” -
“Quit beating us up. Just tell us what to do for crying out loud!”
O.K., I’ll address both points then. This first one now and the next
email will give you 15 ways to get rid of Old Inventory including a
great sale/direct mail program that’s worked well from my friend Kim
Kramer of Marketing Momentum.
A manager of a jewelry store emailed me that he just can’t get the
store owner to drop old inventory, as I outlined in #1 above. Come to
find out they still have open accounts and allow customer to walk
without paying and send monthly statements!"
This is perfect! The boss will understand this one probably better.
Read on…
I told the manager:
Ask him if he would love to sell 100% of product and services to his
customers at FULL KEYSTONE, no discounting and everyone he sees at
the counter would now buy at FULL RETAIL. Ask him if he’d like that?
Then ask him if he wouldn’t mind selling 100% of everyone on open
account. Like the old days. But they would have to pay him 100% of
what they owe him IN FULL, 1 year after the purchase. he’d just be
offering what the big retailers offer:
12 month “same as cash” stuff, no payments and pay it off in full
365 days later. Remember, each and every sale is at keystone. That
includes diamonds!
If he says no, show him how much PROFIT HE IS MAKING!!!
The problem is, he would be MAKING KILLER MONEY but he has NO CASH
to pay bills. Just think if he could get 100% OF ALL VENDORS to also
wait one year to get paid, then he’d have the money to pay and guess
what? He’d have PROFIT left over. That’s the way farmers did it years
ago. Plant, buy supplies on account and pay the General Store at year
end for everything they bought. Great!
The problem is “He can’t afford to wait”.
Guess who Vendors are?
Rent
Advertisers
Jewelry Manufacturers
EMPLOYEES!
So he’d be making money (just like he thinks now) but can’t afford
to wait. So what would he do? Borrow. He’d have to have a higher
accounts payables, bank loans, run up his credit cards and maybe skip
some personal pay checks. Why? Doesn’t have enough money coming in to
meet expenses.
So what to do in this situation?
Get rid of old inventory? NO, he’s selling every customer coming in
at keystone, he’s doing it HIS WAY! What he needs to discount is HIS
ACTUAL CUSTOMER’S WHO WON’T PAY.
Same problem as before (no money) but a different situation. He
sells everything at keystone but he doesn’t RECEIVE his money from
the sale for 12 months or more.
Yes, so in this situation he’d do one of two things:
- DISCOUNT
Usually I say discount non productive inventory but here all
inventory sells. Its customers who don’t pay. So we’ll discount the
customer. How?
We will tell all customers (bluntly here)
"Hey, we need our money. We normally want you to give us MONEY every
month, like paying your mortgage or Visa Card. But you’re not. We
can’t pay our bills. We asked you to pay us once a yea, but you’re
not even doing that. So we had to borrow and I personally haven’t
taken a pay check. We NEED CASH. So I’m going to put YOU ON SALE! We
will discount what you OWE US by 25% or more if you’ll pay us in full
today. If you owe us $1000, just send us a check for $750 and we’ll
call it a day.
I had one customer tell me that he knew we needed to double our
product costs to make money and he told me this was foolish. My
response to him was ‘yeah, but I need cash flow’. If you’ve owed us
for over 1 1/2 years I’ll assume you are in a dire situation. I mean
you love us and wouldn’t stiff us, would you?
There must be a bigger problem. So I’m going to give you OLD
ACCOUNTS an incentive to pay up. I’m going to discount what you owe
by 50%.
I really need you folks to pay up now. By the way, if you’ve owed us
for less than a year, we expect you to pay us too, but in full, on
the 1 year anniversary of your purchase."
- SCRAP IT
“Scrap it” in Inventory means, we have given up and will send the
items to a refiner to be melted and get what we can get. Stones will
be sold to a dealer for whatever we can get or keep stones for
repairs and future custom work. But we won’t scrap inventory,
remember everyone comes in buys and pays full retail.
We will scrap customers!
We will tell the customer (bluntly here)
WE WILL SCRAP OR MELT EVERY CUSTOMER:
"Hey, we need our money. You were supposed to give us MONEY every
month, like paying your mortgage or Visa Card. But you’re not. We
can’t pay our bills. You haven’t even paid us at the end of 1 year as
you promised. So we had to borrow and I personally haven’t taken a
pay check. we NEED CASH. But now its been anywhere from 18-24 months!
I figured I could possibly last a year without you paying us but I
was wrong and you’ve stretched me to my limits. I can’t go on anymore
this way. I’ve tried discounting you, allowing you to pay 25, 50 or
even 70% less that what you owed but you haven’t even sent me a
Christmas card! (Some of you have owned me for 2-5 Christmases).
I’ve had enough! I’m turning you over to a collection agency. That’s
right, I GIVE UP. The agency will give us probably 25%-50% of our
cost! Heck, I’ve already given up making money off of you, so if I
can get SOMETHING,ANYTHING I’ll be better off. Not happy, but money
in my pocket.
What will happen to you? I don’t know and Frankly my dear I DON’T
GIVE A DAMN (hurray for Gone with the Wind). I’ll get my money. I’ve
been told that collection agencies take OLD PAYING CUSTOMERS like you
and throw them into a FIRE! Yes, a fire. I believe it’s the same kiln
they use to MELT GOLD. Good riddance!"
This is exactly what stores do that have large numbers who owe them
money. Before they’ll write them off, the give an incentive to pay.
Credit card companies do it every day. “Pay me a percentage of what
you owe us now, we’ll drop law suits but never sell you again (at
least for now)”. Or they write the debt off and let collection
agencies see what they can get.
Back to Reality:
It’s the same with inventory. Whereas accounts receivables (what I
was writing about) doesn’t give you $$$ until they pay you, you won’t
get any $$$$ until inventory pays you. How’s that done? By inventory
selling, that’s how you get paid. You expect some percentage of
inventory to pay you every month.
If his customers paid their accounts receivable every month, that
guy above wouldn’t have been in such a pickle, would he? But if
"some" paid him, could he survive? No, he needs a lot more than
"some". In fact he’d be OK if 75% of the customers paid up. Even with
25% of the customers paying slow, the 75% that DO PAY would make life
peachy keen.
Inventory is the same. 75% of the inventory should sell during the
year. If 25% of the inventory doesn’t sell, its OK because the 75%
that does makes everything “peachy keen”. For most store less than
40% of inventory sells in 1 year.
There’s no difference in discounting or scrapping dead beat
customers from discounting or scrapping dead beat inventory.
Everyone is a dead beat after 12 months.
Next email: 15 ways to get rid of Old Inventory.
David Geller
Director of Profit