Happy New Year, It’s Clearance Time
For most independent retailers, the New Year is anything but a time to kick back, consider the year just past and resolve that the coming year will be different. No, for most, there is still some serious business to be done, with customers looking for the things they didn’t get for Christmas, and gift cards to spend. For some, physical inventory looms with the end of the year. And then there’s getting ready for clearance season.
Happy New Year, it’s clearance time.
It would be easy to look at this time of year simply as when retailers clear out all of the seasonal goods that are left over after the holidays. That would, however, overlook how important the next several months are to profitability and cash flow. Managed with care, clearance season can go a long way to preserving the margins and cash flow that the holidays generated. Managed without that care, those margins and cash flow can head south pretty quickly.
Here are several ideas for managing clearance time to maximize cash flow and profitability:
Identify your sludge, and get rid of it now! Even the best buyers make mistakes. Sometimes they even make humdingers, the kind that leave even them wondering what they were thinking. I call those really bad mistakes sludge. Sludge is the merchandise that came in and just sat there. It’s so bad that it makes everything else around it look worse. Picture mustard yellow sweatshirts, or lime green pants. Chances are you already have it marked down, but it hasn’t really helped. The fact is that sludge is often so bad that it doesn’t really have any value, and poisons everything else around it. Sludge is toxic. So if you’ve got sludge, get it off the floor, away from your customers and the other merchandise. Feed the dumpster. Often, the only value from sludge is the tax credit from the write-off.
Plan your clearance sales. Plan those sales by units, by category, by week, with markdown percentages and planned ending inventory levels, right through the clearance season, until you’ve planned the sell-off of all the inventory. Be as detailed as possible. Then, use those plans as benchmarks to assess your progress, week by week. Adjust your plans as you go along, increasing markdown percentages where necessary, and scaling them back when you are exceeding your unit sales plans. Your objective is to maximize the cash recovery on your clearance inventory.
Schedule spring-forward inventory to arrive as clearance inventory sells down. Layer in spring-forward inventory to maintain well-rounded assortments, without taking the focus off of the clearance inventory. An early sale of spring-forward merchandise at full margins certainly helps cash flow, but not if it means that clearance merchandise that might otherwise have been sold sooner (at a lesser discount) will instead be sold later (at a greater discount). It can be a delicate balancing act, but I recommend keeping the focus on clearance inventory until you are at final markdowns and can clearly see the end in sight.
Avoid packaways. It can be tempting to packaway basic seasonal merchandise rather than mark it down, but in most cases you are better off getting your cash out of it now rather than waiting another six to eight months to bring it back out onto the sales floor. Chances are better than not that you won’t be able to get too much more for it then than you can get for it now. Take the cash now. And if you’re still not sure, ask yourself this: how would you feel about pulling spring-forward packaways out to the floor now, to mix in with your new spring-forward assortments?
Finally, now is the time to avoid excessive summer clearance markdowns. The fact is that most markdown problems can be traced back to before the season even began, when decisions were being made on what to buy, how much to buy, and when to bring it in. Excessive markdowns are tangible evidence that those earlier decisions were not considered as carefully as they should have been. Careful planning can be time consuming at the beginning of a season, but there’s no surer way of avoiding excessive markdowns than to take the time to plan the coming season carefully and in as much detail as possible. And for the coming spring season, that time is now!
Happy New Year, it’s clearance time. The work never seems to end. But the work done right now, at this time of the year, can go a long way to assuring profitability for the whole of the coming year. I’ll raise a glass to that!