Inventory Markdown Strategy for Boutique Owners

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Hey guys, it's Sarah with the Boutique Hub again. I'm back today to answer one of your frequently asked questions and that is, when should we mark down our inventory? Guys, I don't care if you're just getting started in business or if you're a 20 year veteran like myself, there's times in your business journey that you're thinking, should I mark this down? Did I miss the boat? Is it too soon? Is it too late? Well, guys, sometimes it's as simple as understanding the life cycle of your inventory. Yeah, the life cycle of your inventory. So as long as we have the mindset that inventory does not get better with age, unless you're Michael Jordan's tennis shoes, it doesn't get better with age. So the longer it sits on your shelf, the more money it costs you. We talk a lot about inventory turn. The faster you can turn your inventory back into cash, the faster you can reinvest that cash back into your business to make more money. Right? So that's the healthy side of a business. Well, in retail, lots of times we get stuck with some old inventory. They're buying mistakes, not a big deal. It happens to all of us. However, being able to understand when we need to move these things out at a second sale, a reduced price is really important to keeping that turn rate quick and also increasing profitability. So a couple things to consider. What is the demand for the product? What's that life cycle look like? Is it something that that product still has some viability in your store? Is it still a good product? Maybe your customers just aren't seeing it. If that's the case, simple re merchandise it, reshowcase it, relocate it, make it new again. Right. If it still has some life left in it. And maybe your customers just aren't quite appreciating it. Right? Maybe we just haven't done a good job marketing it. However, if that item is at the verge of the end of its life cycle, I'll say like say swimsuits in August, say swimsuits even in the end of July, right? That is nearing the end of its life cycle, which means the majority of your customers has already purchased that type of a product or it's just not going to be relevant anymore. Say Christmas T shirts in January, that's the end of a life cycle. The value of that product is lower at the end of their life cycle. So understanding that within your inventory is going to be key to understanding a markdown strategy. Basically, when you do make the move to move your inventory out at a sale price, make that sale big enough that generates the customer's excitement, right? So they turn around and buy it. The last thing we want to do is murder the price tag. What that means is $5 off here, 5% off there, 10% off there. And next thing you know, that little price tag has so many red dots on it or marks on it or slashes on it that you don't even know what the price of that item is. So we want to keep that clear and concise and obvious to our customers. We want to generate some excitement with them with that reduced price that turns around and makes them want to buy it. Right now we also have to increase that idea that if we don't get it now, it's going to be gone. So that's that fear of missing out. It's a real thing. It happens in retail. And it's not to say it's a game, but that definitely does generate some excitement, some urgency. So going back when do you put things on sale? Well, you can put things on promotion to get a little excitement from your audience on a new type of a product, right? That just is going to maybe encourage them to look at something they otherwise wouldn't have been looking at. Maybe say you want to do a new promotion on a line of jeans that you're introducing into your store. It's more to generate that excitement to get somebody. Instead of looking at brand A that they always buy, now look at brand B as an option. That's a promotion. But when to put things on sale, if you have far too many of an item, if it's tying up your cash, if the item is beginning to lose momentum, maybe it's beginning to age, right? Maybe it's just a bad fit or a bad color or it was brought in at the wrong time. These are all reasons to start to consider a markdown strategy. Supply and demand. Listen to your customers. If your customers are not interested, ask yourself why? Why aren't they interested? Is something wrong with the product? Is it in a bad spot? Are they not seeing it? Is it a bad fit? Is it a bad feel? Right? What is it about that product that's not moving? And if it's something as simple as just the end of its life cycle, it's not excitement anymore. Definitely make a move to reduce that product as far as price goes. So if you have a point of sale system, there's Many really easy ways to do that. You can actually go in and preset those discounts into your point of sale. So as soon as you scan it in, it comes up with the exact sale amount. That makes it really, really easy. But signage in your store is going to be huge. Let your customers know, whether it's on your website or in your store, what's on sale, Right? And we always say sale items go towards the back. Draw that customer towards the end to the back of your store. Right. And don't necessarily put sale items at the first thing you see on your website. It can devalue your offering. But understanding that the faster you move through product, the more profitable you will be. Now, I do a whole nother video about pricing strategy and making sure your original markup absorbs your markdowns for all you new boutique owners. What does that mean? That means that if you get in an item and it's $10 cost to you, that if you only charge $20 for that, that's a $10 profit of which you need to make sure you're covering your $10 cost. You need to make sure you're covering your utilities, your overhead and your reduction in price or your markdown, as well as payroll and all your other expenses. So with that, when you do reduce the price of your inventory, it's got to be able to still generate a profit. You hope it does. So that is why it's really important to make those sale markdowns early rather than later. If you wait too long, it's going to end up costing you too much money. Again, like I said at the beginning, the longer your items stay on your floor, the more money it costs you every time you re photograph it, move it, touch it, feel it, pack it up, sell it, return it, all those kind of things that all cost you money and it cuts into your bottom line. So if you're wondering if you should start a sale on a product in your store, get up, walk through your main floor, your warehouse, whatever it is, look at the items as far as through a customer's eyes. Are they still viable? Do they still have life in them? If so, make a move to re merchandise them, showcase them again. If they are nearing the end of that life cycle of a product, get aggressive in a markdown. All right guys, simple as that. No dumb questions here at the Boutique Hub. Keep them coming. I love coming back and answering your frequently asked questions. Subscribe below, let us know what else we can help you with and have a great day.

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