Stop Losing Money on Inventory! How to Make Your Product Business More Profitable

Have you ever looked at your sales and thought, I'm making money, so why does it feel like there's never enough money in my bank account? Okay, you're not alone. Or maybe you have shelves full of inventory and there's products that aren't moving and you're constantly trying to figure out what to buy more of, what to stop selling, and how much you actually need to have on the shelf and in inventory. Well, my friends, today's guest is going to help us unpack all of that. I'm joined by Katherine Erleby. a retail strategist, speaker, author, and founder of the Resilient Retail Club. Now, Katherine has more than 26 years of experience in retail, including senior roles with major retailers in the UK and the US. She now helps independent retailers and product-based businesses increase their sales, improve their cash flow, and build more profitable businesses. And you know, if you listen to the show, I love a profitable product-based business. That's the only way. Now, Katherine is also a Forbes contributor. She's the host of the Resilient Retail Game Plan podcast. And she's the author of Tame Your Tiger: How to Stop Your Product Business Eating You Alive. And one of my favorite things Katherine said when we were preparing for this conversation was, give me 20 minutes looking at your data and I'll tell you why you have less money than you want. And I thought, okay, we need to have this conversation because making sales and keeping money are not always the same thing. Katherine, welcome to the Product Boss Podcast. Thank you so much for having me. Katherine, welcome to the Product Boss Podcast. I'm so thrilled that you're here.

Well, thank you so much for having me, Jacqueline. I'm really excited to be chatting with you today.

I know, it's, it's so great to meet people that are In the backend of the product world, get it, have worked in corporate, have worked in these types of brands, and then can take it and really teach it to people and women that are still figuring it out, that are bootstrapped, that are growing their businesses themselves, as you call it, indie. Um, so you've spent years working for major retailers before you started the Resilient Retail Club. Um, what made you decide to take everything you learned in big retail and then bring it to independent business owners?

Well, I think people have 2 kinds of stories when they start their business. Some people, it's a pull story. They were drawn to do something. They just had a burning passion. And some people, it's a bit of a push, like they just couldn't do what they did anymore. And I think I definitely fell into that push. So I worked in corporate retail for nearly 20 years in the UK and the US. I worked for Talbots in Hingham, Massachusetts for 5 years, which was great, I have to say. And then I went back to the UK. I was working in London. I was commuting, doing the whole working, commuting mom thing, dropping the kids at the pre-breakfast, breakfast club, running around constantly. And I just got to the point where I basically burnt out. I just thought, oh, I just cannot, I can't do this anymore. And once I opened myself up to the possibility of that, which took a long time because I'd really worked hard on my corporate career, and for a long time I was committed that that was the route I was going to take. Then I stepped back and I had a think about it, and I thought, well, what would I like to do? And I realized that I'd always been drawn to working with small businesses or talk— or shopping from small businesses, if I'm completely frank. You know, my happy place is shopping a market or going, you know, browsing Etsy or just supporting somebody who was doing something they were really passionate about. And I think coming from the corporate world, that passion and that, the, just the love and care that goes into small businesses, I think that's what really attracted me to them. And then I thought to myself, I wonder if all of my knowledge of working in corporate, all of my knowledge of how you build a sales strategy and a profit strategy, how you manage your stock, I wonder if that's something that small businesses might find useful. And lo and behold, they did. And lots of people have described it as kind of that missing puzzle piece. And I'm sure your audience will find that with you too. It's that kind of bit where you connect the passion and the creativity to the, okay, how does this thing actually make money?

100%. And that's something we've been focusing on lately is I say at the Product Boss, we help people build million-dollar Profitable. Yes, right?

Oh my

goodness, because who cares about million dollars if you're not profitable? And so I know you have a book called Tame Your Tiger Habits: Stop Your Product Business Eating You Alive, which—

Yes.

Just the visual of that, because I'm such a visual person, is like absolutely 100%. Because usually they're like, how do you stop running from the tiger? It's like, no, the tiger's coming to eat me. Um, so, you know, thinking about that and like the feeling of eating being eaten alive. I mean, it goes to profit because profit's so essential.

Oh, yes.

Because it allows for your company to flourish and to thrive and to exist without feeling that way. So, let's get into that a bit more.

Yeah, I completely— I couldn't agree more. And I think that the key thing, the whole kind of concept of the tiger was that running a product business can be like, let's say you're driving home one day and you see this cute little stripy kitten by the side of the road. You think, oh, that's so cute. I'm going to have so much fun with this. And then one day, after a while, you're like, wait, I'm kind of scared about this and it seems to be eating everything I have. And you think, actually, maybe this thing is now a tiger. And I think that these businesses, most people don't start a product business because they're like, you know what? I really want to crunch some numbers. That's what I want to do. They start it because they see a need out there in the world that they personally can't fill for themselves, or they have a passion, or they have something they want to do. They have something they want to help people with. And so, they often then will be going along, enjoying the ride, because it's such a wonderful creative expression to be able to make, to create or curate products that you love. And then all of a sudden, they think, well, hang on a minute, why do I just not have as much money in my bank as I think I should have? And I always say, you need to have a sustainable business, and by sustainable, Maybe the first year you can get by without paying yourself too much, but 3, 4, 5 years down the road, if you're working really hard on this business and it's not rewarding you financially, very few people can really maintain that before they just think, you know what? This has just become this expensive, stressful hobby. So, I completely hear you. I 100% agree. Turnover is vanity. Profit is sanity. Cash is reality. That is That's my mantra. And I think that it's so important to understand that because I've also seen people who've built, as you say, multimillion-dollar businesses or multimillion-pound businesses, and then they weren't making any money whatsoever. And usually, you can dig in. I'd say, what's my superpower? Give me 20 minutes with your numbers. I'll tell you why you're not making money or making as much money as you'd like to. But I think that unless you have real deep expert knowledge, why would you know where to look? And also, I mean, there are lots of phenomenal accountants out there, but a lot of accountants are not necessarily trained to look at a retail business in the right way.

Literally everybody listening right now is putting down their coffee, getting out a notebook. It's like, how do you know me so well, Katherine? But it's true. I mean, I've, you know, I've had million-dollar companies I've worked with that when we get into discovery, it's like, well, what's your profitability? And they're like, 10%. Like, okay, what are you paying yourself? They're like, I'm not. I'm like, at a million dollars, we're still not paying ourselves. And so, and listen, you know, listeners out there, and you know this too, if you guys listen to podcasts or other business educators that are talking about profitability, there, it's different when it comes to product and inventory. It just—

Yes.

Going to be different. So you've got to listen to the voices that understand manufacturing and inventory and product and cost of goods and markup and margins, right? And so,

yes,

I want to know from you, if I did give you that 20 minutes, right? So you're like, give me 20 minutes, I'll tell you why you get less money. So if you had the 20 minutes, yeah, what would you see that most business owners are missing?

Okay, so there's really 3 main areas. The, the first one, and I know you talk about this a lot, it's your profitability. So the number the kind of main tenets of whether or not a product business is profitable is whether or not you make enough money every time you make a sale. So that starts with your, what I would call your in-margin or your gross profit margin. So that is the pricing architecture, the cost of the goods that you're sourcing, all of those costings going into there, making sure that that gap between what you buy something for and what you sell it for is Correct. And if you think about one of the examples I often give is if you think about a national chain of retailers that has hundreds of millions of dollars of inventory, and it has fleets of trucks, and it has this huge store base, and all these people that they have to pay, all of that money is being covered. All of those expenses are covered from just one place, which is the difference between what they buy their products for and what they sell them for. So, big retailers obsess about this. There are entire teams of people who do nothing all day long than look at what are we buying stuff for, what are we selling it for. And then in small businesses, sometimes it's difficult because all of your invoices come in in different places. So you might get your duty and your freight invoice somewhere different from you get your components invoice, and you might get— you'll see all of those different costs in different places. But unless you break that down for each single one of your products and actually check. If I sell it for $20, is this the first thing, the first structure? If that's right, then great. And if it's not right, then we need to fix it because that's the foundation that the entire business is built on. And if it's shaky, as you said, you're nodding, you're like, I say this all the time.

I'm like, I want to give you snaps, I want to applaud, I need to hear you.

I know that we're on the same wavelength here. Nothing else that you do works if that first number isn't right. And then the second number then is, okay, so that's kind of your theoretical profit margin, right? I buy it for $5, I'm selling it for $20, but then there's your actual profit margin. Okay, so, but what did you actually sell it for? You may have put it as $20 on your website, but did everybody buy it with a 10% off welcome coupon? Was everybody buying it in one of my flash 30% off everything sales that some people do a lot of. So, you have to understand, is the structure right? Is the pricing structure right? And then, are all of the activities that I'm doing around the business, are they correct as well, or are they having too big of an impact? The thing is, if your cost price versus selling price ratio isn't right to start with, you have to fix that first. But there are also some people who have a pretty decent ratio, but then either their cost of ads are too high or they're, they're doing too much promotional activity, so their kind of actualized margin is not really where it needs to be. So I'd say that is the first, the first and probably the most important one.

Absolutely. And I'm going to add on, you guys have to add labor in because people who are manufacturing, they already have labor. They're thinking through that because they're paying someone else. For those of you who are still hand-making your products, Um, please. Or have people that you're related to that you're not paying. We have to also sub in what that would cost if we did hire them, or else you're really starting in the wrong place. And listen, like I said, I mean, I, I was with my masterminders a couple weeks ago, and there were like 3 people in there with $950,000 businesses that were still figuring this out. So—

Yeah.

It doesn't mean that you need to know, like, there's no magic number in your bank account or revenue level that you, you learn this at. But kind of what you said, if the tiger's eating you alive, or how to tame it, is when is the pain too great? And we want to solve for this earlier than later.

Yes, 100%. And also just to be kind to yourself because I also think that, and that's why it's so great to talk to you because there are a lot of people who are out there in the small business space who do not understand small product businesses. And I think you touched on it. And I know because I run a service business. I'm a service business that helps product businesses, and I go to a lot of the small business events and I listen to a lot of the small business advice, and most of it is for service businesses. And I think that there's just this very specific need to understand these metrics, otherwise the product business just doesn't work.

Yeah. And I think that's— and yes, you run a service and so do I at this point, but I've had product and I worked behind the scenes in massive companies. And I think that's the same with you. You said Talbots. You worked at Laura Ashley, which was like the OG bows and flower company that, you know, there's one gal. Um, and, uh, and so like you've worked behind the scenes and I love what you said because a lot of times, I don't know if you have this in the UK, but when I was growing up, we had this TV show called DuckTales. It was a cartoon.

Oh yeah.

And did you, did you have it?

DuckTales.

Yeah. Yeah. You see, you got it. Then remember this, you know, remember like where they had the, like Scrooge McDuck, like how he would jump into the vaults of money and sleep there?

Yes.

I was like, Again, visual, right? So I know you guys, even these huge brands don't have vaults of coins like Scrooge McDuck that they're diving into, and that's where they're resourcing it all. So they're— and maybe you could speak a little bit more to that since you have been behind the scenes and not specifically to the brands, but it's this idea of cash flow. And I think— and there's a disservice that's done here. There is a— there's a money guru man who a lot of people listen to, has a big podcast, and he's like cash only, no credit debt, um, you know, buy your house in cash, that kind of stuff. And I'm like, that makes sense when you are maybe not an entrepreneur. It's not business advice. And it makes sense when you're working for someone else and you're going to have the same salary your whole life. So people will come in as these indie small businesses thinking I have to have all the cash on hand, it has to go out and come back in immediately so that XYZ can happen. And so maybe you can speak a little bit more to that mindset and what you know to be true from behind the scenes.

Yeah, I think that that is such an interesting point. And I think again, a lot of— I feel a lot of the work that I do is very educational because people come into product businesses without a retail background, which It makes sense because it's a lot of fun, right? When it's good and fun and creative, it's a lot of fun. And I think they don't realize there's a lot of shame sometimes attached to, oh my goodness, I should have figured this out. So sometimes it's unpicking this and saying, well, you didn't know. So again, there's not a lot of great advice out there, which is why we do what we do. Mm-hmm. And so I think that, yeah, they're getting in a pickle with the profitability is very common. And then also this idea that this time of year in particular, so we're recording this in October, this is a very difficult pinch point for a lot of product business owners because we're about to go, not everybody, but lots of us have products that are very giftable, so we tend to have a peak for the holiday season. And I think what a lot of people don't realize is that big corporations, so lots of people really want to run their businesses without taking on debt or without, you know, like exactly as you said, they're saying, okay, I've got to finance everything upfront. But what they don't realize is that when over 50% of your revenue or, you know, more even, it comes in the 4th quarter, it's an extremely difficult thing to do without some kind of credit limit. There's just no two ways about it. And I think that what they don't realize is that big retailers, It's not even that they've got a credit limit, it's that they're trying to stop hitting the bottom of the credit limit. So when I worked, I worked for a UK company called Paperchase, which was a really, in its heyday, was a really fabulous creative stationery brand. So lots of paper products. I'm trying to think the equivalent in the US, but just think fun, fun stationery.

Maybe it's like Rifle Paper Co.?

Yes. Yes. Okay.

Yeah, sure.

Something like that. And they had about 200 of their own stores and it was a national, which for the UK is a national chain. And they got, it was even more than 50%. It was probably closer to 60 or 70% of their sales would come in the 4th quarter. They were really heavy on decorations, on wrap, on cards, you know, the whole shebang. So, it was really, really seasonal. And we used to have this meeting, it was called the PPPP, and it was called Pushing Payments Past Peak. And basically, we would have a sit-down with the CFO, and he would basically make every single product team go through every single purchase order we had with every single supplier and see, can we move the payment date like a week, 2 days, 3 days? We were just doing everything we could because we were at the bottom of the credit limit ahead of Christmas because it was this upside-down seasonality where you basically have to outlay all of your money for stock and then the sales come in. So, when I talk to a small business owner who's feeling terrible because they've run out of money in October, I often say to them, you know, you realize that these big retailers, they're not flush with cash. You know, I know there's lots of theories as to why Black Friday is called Black Friday, but the one I was always told was that it's the, the day that the retailers would go in the black for the whole year.

You're right. You are absolutely 100% correct. Yeah, because up until that point, they were in the red, which means they were negative. And so, uh-huh, and we'll get into moving inventory to turn it back into cash.

Yes, completely. So I think that there is definitely that sense of sometimes you just have to, you have to have the capital to manufacture, especially if you're manufacturing. If you're sourcing closer to need, if you're buying from other brands and you can get your stock quicker, then it's not always as pressured. But if you've got a 3-month, 4-month lead time and you need to place the order for your biggest season, then The the maths just ain't mathsing, as they say. Well, the maths just ain't mathing. I don't know.

The maths ain't mathing. Say it in an American accent. No. That's and then even that's the ironic part too because you come out of the summer season where a lot of sales are slower. So it's like already in this dip, cash needing to be out, and then to be in manufacturing to be getting the stock in time for the holidays. And then it'll rain. Right? Then it's like that saying make it rain. Then The sales will come in and it'll be flush again. And so it's really understanding the ebbs and flows of cash. I think what you do obviously is so important when it comes to, you know, my life coach says this, but she says math, not drama. And so ultimately though, what we're saying is do the math, like know your numbers. Like one of what I— people, people who work with me and work with me for a while, like, you're gonna get really mad at me, I don't know my number on this. And then people who've worked with me for a while are like, okay, I know my AOV and I know my other math. But But there are certain numbers I think that are super crucial and important to understand. And there's that faith and hope knowing that they're not alone. And I think you say debt, and I like to tell people in business, it's thinking more about leveraging money. Mm-hmm. So there's short-term leveraging where it comes to credit cards. There's long-term leveraging where it comes to lines of credit, um, loans, and all these apps now, like, or payment processors like PayPal or Shopify. They're allowing people to take loans and then pull it out because cash flow and inventory has always been a thing. Yeah. So how does a product-based business owner know if they've got too much inventory, too little inventory, the wrong inventory? Because now we're talking about money getting trapped. And yeah, and I say it too, that's why I have— I don't know if you can see, but I have this money bag sitting behind me because I'm like, literally your product is cash sitting on shelves. You have to turn it over.

Oh my goodness, I say the same thing.

Okay.

Because if people say to me, they'll say like, I don't have as much money as I should have in the business. And I'd say, okay, here's a visual prop. This is my lipstick. Okay. Imagine that instead of this being a lipstick, this is a $20 bill, right? Okay. Now I think about every single product that you have in your shop, your warehouse, your studio as a $20 bill or whatever it is in equivalent. Now look around and tell me where the money is, right? And then everyone goes, oh, right. Okay.

Yes. I say the same thing. I'm like, how much money do you have sitting around you right now? And people are like, $30,000. Like, they look around, they're like, it's $30,000. I'm like, great, now we got to move this into cash.

Yeah, yeah, completely. Because going back to my point about the, the kind of fundamental underpinnings of a product business, you will be making— you will be successful if you make enough money every time you make a sale, and if you get your money back from your inventory fast enough. And every week's improvement in your stock turn is an improvement in your cash flow. So the way I put it is, you know, your cash needs to flow. The money goes out, it comes back in, it goes out, comes back in. And if it doesn't, if it goes out and then it doesn't come back in again because it's sitting there on your shelves, then that is when the cash flow becomes a trickle and everything becomes a problem. And that's why big retailers Frankly, are kind of tough to a lot of their suppliers because they will be like, okay, we're going to take these goods and we're going to pay you in 120 days. Because their CFO knows that every day that they can sell something before they pay for it, then that's benefiting their cash flow. So, how do you know if you've got too much? Well, it's a great question. And I think that It's a little bit how long is a piece of string, but that said, I think there are some clear parameters you can put around it. The first thing I would always say is that the amount of stock that you should have always should be tied to the amount of sales that you're planning. And I think 3 months can be a good rule of thumb. It doesn't work for everybody. And also, if you're turning faster than 3 months, if it's like, if you're like, I've only got enough stock to last me 1 month or 2 months, But that seems to work for me and I get my top-up orders quickly. Don't bulk up to 3 months because basically it's a game and the game that we're playing is how little stock can I have without impacting my sales? So if you never have enough of your bestsellers and they keep going out of stock, then you're losing money. But if you have got, you know, a year's worth of stock, I think the The record is 4.5 years of stock that somebody— I looked at their— looked at how much stock they had, and they still tried to fight me to do more product development. And I was like, oh, no, no, no.

Yes.

So, you need to understand how your sales and your stock are related. So, that would be my first thing. And you were talking about forward sales. So, if we're sitting here at the you know, just about to go into the peak trading season, your stock levels for 3 months forward stock is going to be way higher than in January when most people really hit a lull. So that should also inform your budgets and your timing as well, because you don't want to be opening January with a whole ton of stock to sit on unless January, February, March is a real peak time for you. So you want to be following the year, you want to be working your budgets around around the year effectively. So how do you know if you've got too much? Well, if you do this calculation and you're like, okay, actually I've got 6 months. Okay, well, can you turn it faster? There are a few things that make it complicated. Clothing sizing makes it complicated. I think the worst ones are shoes, men's suiting, and lingerie, particularly bras. Because there are so many different variables. The more size variables there are, the more stock you end up— it's harder to manage.

I'm going to just jump in really fast because my background is lingerie, funny enough.

There you go.

That was one of the big companies. But just to kind of break it down, people are like, what does that mean? It's like a 34A, B, C, D, double D. And so it's like, not only is it the style and the color, but then the sizes, or

the

shoe is like 7, 7.5, 8, 8.5. So, yeah, there's just way more variance we need for every individual SKU per color and size.

Yeah, for sure. And that makes it harder, which is why one size— I think, honestly, why one-size clothing has had a bit of a moment where, you know, I think it's also easier to buy, stock, and manage. But if you have something that is single size or not sized at all, like home or jewelry or things like that, then you can generally run it tighter. The other big complicating factor is how long it takes you to get more. So, if you've got, you know, I worked for a company that sold Italian men's suiting where it was the craziest setup. The fabric came from Italy, got shipped to China, the suits were manufactured in China, and then they were shipped back to the UK. So that was a 9-month lead time. So that's harder to run that tighter because if you get it wrong and you're out of stock, then you really have to, you've got to wait. So I would say that in, in those instances, you're probably going to be running higher than that 3 months, but I think it's just worth starting there and just saying, okay, well, all right, well, how far off am I? Could I, is there an opportunity to trim that down? And then you kind of want to measure it against yourself. So I would be checking that because what you don't want is your stock to be snowballing and creeping up and creeping up. And when people aren't really managing their stock actively, then that does tend to happen. They'll have, we're all, I call it shiny new stock syndrome. We go, oh my goodness, well, I think what I really need to grow my sales is I need something new and something fresh. And then they go off and they buy or they manufacture something else and they forget about all of this other stock. Yeah. that is, is in the background.

Yeah, I tell my clients, if you're bored, get a hobby. Because they're like, but I had this idea and I need to make the thing, and, and I, you know, I got inspired. And it's like, would you rather make money? I— and I referenced Juicy Couture, you know, just going back to all my like '80s and '90s references, because like you think that they wanted to make another one of those tracksuits in another color of velour. No.

Yeah,

but they were making so much money from it that, yeah, people who really nail the bestseller or variations of bestsellers or the category or SKUs, it's like they're making money. Yeah, it's boring, but boring businesses are great businesses, you know. Then there's obviously the flip side. I just did a whole conversation about Lululemon and how Lululemon went too long on product that wasn't moving and they didn't pay attention to the dip. So I think this is why it's so important to be supported by you and, and, you know, like Coaches and strategists and experts in this, because you just don't know what you don't know, and you don't know when that lever needs to be pulled or something needs to shift and change, you know.

Yeah.

So, um, kind of going more into that then, I think, I think you have like some methodology around dead stock.

Yes, absolutely. So one of the biggest fears that people have, and I'm sure you may have had these conversations as well, is that People really worry about damaging their brand. So, they may be in a situation where they're saying, you know, I've got all of this money tied up in stock and it's really slow, but I don't really know what to do and I'm really scared that I'm going to damage the brand, which is reasonable to an extent because you don't want to fall into what I call the Gap trap, which is, you know, where it's always 40% off everything and you just get to the point where you think, well, why would I ever buy anything full price? In the Gap because there's always a sale. And I think the problem is that there's this huge range between going that far down the promotional route and also the fact that a lot of these retailers, they structure their buys this way. They don't think they're ever going to sell it at full price, so they know when they're purchasing it in, in some instances, that that's what they're going to do. And so, it leaves small businesses confused as to how they can actually manage it, how they can actually clear their deadstock without damaging their brand. But the way I look at it is that stock clearance, it's really all about a safety valve. So, we've all had it where we had an idea for something or we really believed in a product. You go ahead, you manufacture it, you purchase it, it arrives, and then for whatever reason, it just doesn't sell. It just, people just didn't like it, or the, you know, things had moved on, or maybe the color wasn't quite right, or who knows, there's like a million different things that it could have been. And so what you see is that within everybody's stock cover, so the stock cover effectively is that calculation, the number of weeks worth of stock that you have. So it's a theoretical number based on an average weekly sales. So let's say you have 12 weeks worth of stock in your business, you do the calculation, you say, okay, I've got about that 3 months forward ordering, uh, the forward sales covered, so I'm in about the right place. But the thing is, within that, there will be some of your stock will be spinning really fast, so your best sellers are going to be coming in, going out of stock super quickly, and then some of that will be then just sitting around doing absolutely nothing. So it's never— I've never ever seen a business where the entire every single line was turning on 12 weeks cover, right? There was always the best sellers and the worst sellers. And I think Shopify does a good job, although they slightly changed the formatting, made it a bit harder, but their ABC report, for example, that will tell you your A is your top sellers and they're turning much faster, and then your C is your slow. And so the first thing that you want to recognize is that if you have a lot of this slow stock, then that is the stock that you need to be taking action on. And if you don't take action on it as what we call like a clear-as-you-go strategy, then you will just stockpile it. And then all of a sudden, you wake up one day and realize that you've actually got no money in your business because it's all in the tail. Although the tail is kind of the long list of products that aren't really selling. And one of my phrases from the book is, the bigger the tail, the bigger the tiger, because the more money you have tied up in that tail, in the stock that's not moving, then the less money you have to reinvest into your bestsellers. So in terms of how do you actually clear the deadstock without killing your brand, the first thing you need to do is work out that not all stock is equal and that you've got various different buckets. So your first bucket is your prime stock. So that is everything that is doing really well and you just don't wanna touch it. That's the, the stock that I get mad when people do these blanket discounts, 20% off everything, because the customer usually just goes and buys that at 20% off when they would have probably bought it full price anyway. Then you need to work out the kind of stock that's just ticking along. Probably if you didn't do anything with it, it will eventually sell through, so maybe you don't have to do anything. Then you've probably got some out-of-season stock which is really hard to clear, which is, you know, like what I call the brown bananas. So, uh, the day after the holiday, like, you don't— just nobody wants it, right? Nobody wants something that says Merry Christmas on the 26th of December unless they're buying it at 50% off or more because they're gonna put it in their box and keep it for next year. So that stock you generally kind of want to just put to one side or tag in a certain way so you know not to worry about that too much because there's no point trying to clear, you know, your Christmas stock in the middle of the summer. And then the other category, the one that should make up the bulk of any discounting activity, is all of your slow stock. So that is things that you bought too much of. Things that was selling really well and now isn't, all of that kind of stuff that you've actually got a fair amount of. And if it keeps going at the current rate, you're going to have it for the next 5, 10 years. That's where the money is trapped. And that's the stock that you would then do a targeted discount. And the big difference between the gap trap, you know, money off everything, which people really fear, and to be honest, does damage brands after a while. You do it enough times and no one will buy from you at full price. There's a big difference between that, where the customer really truly believes they can get anything that they want at a discount, and a targeted discount where you are very clearly using a discount to shape the customer behavior and steering them towards the products that you want them to clear. So those are the ones where you're going to say, okay, the discount always looks like it's for the customer, but it really should be doing something for you. So it should be targeted, specific, And not give the customer the idea that, oh well, I can just get anything I want from this store and it will always be discounted. They'll say no, okay, they've got some discounts on some specific products, so it's steering the customer in the right direction. And personally, I believe that if you do it like that, also, you know, short sharp discounts, for example, not, not going on for months and months and months, I don't think that damages the brand because this This is well known. This is a well-known thing that we do in the retail industry, especially if you do it during the times when everybody's on sale. Like January is the perfect example. I often say to people, you know, come out of Christmas. Christmas is a great time for you to really, or the holiday season is a really great time for you to understand what's working in your business because everything sells more at this time. So if it didn't sell during the holidays, unless there's a real seasonality to it, that means that it will pick up in the summer. If it wasn't good in the holidays, it's not going to be good. So use that January window when everybody else and their dog is on sale to go on sale because the customer is not going to be like, hmm, wow, I wonder if they're in trouble because they're running a stock clearance sale in January. Like, no customer ever thinks that, right? They just go, oh great, January sales. So for me, it's about being really specific and targeted and thinking about the timing as well.

Absolutely. And I want to jump in on that because, you know, we just actually did a holiday planning event and did one online where we were basically talking about like how to go about Q4, what it looks like. And I always say like run promotions. And people ask, is a promotion a sale? Like, not necessarily. We're promoting a product, or we're— the customer wants you to tell them what to buy. So we're connecting the customer to what you said, like shaping the customer. Yeah. What do we— what action do we want the customer And like you said, it's for us, but a great marketer knows how to make it make sense for the customer.

Yeah.

So one thing for everyone to know, if they hear you and they're like, oh my God, I can't do it in this season and in Q4, the expectation is it does go on sale. The expectation— now it doesn't have to be for the entire Q4, it's discounted. We've just come out of Amazon Prime Day and Target have had early, like early of October, started their holiday sales, let's say. So they're getting customers to buy earlier, but it was 2 days. Like you said, it was quick, it was targeted, it was 2 days. Was everything on sale? Maybe not, but the people, the things they wanted to participate in. For Black Friday, Cyber Monday, or at least Cyber 5 and around that time, the expectation is your stuff is on sale or they're most likely not going to buy between now and then. There's different ways of targeting promotions, but I think it's more of, you know, here's a new fall drop, here's a new Christmas drop, here's what you could buy for gifts, gifts under $100, gifts under whatever. Where I see, and I agree with you, where people go wrong is they think that the only way to move their product is if it's on sale. And then the flip side is, if I run a sale, they're only going to expect to buy on sale from me. But in this season, there is an expectation around sales. Mm-hmm. At certain dates, 100%. There's Boxing Day for you, UK, and, you know, Canada. There's after Christmas sales. Like, there are going to be expectations. But when we think about Black Friday, I just want everyone to go back. It's for you to go back into the black. That was why they were created. Now it's cultural. Then the after Halloween, after Christmas, after Thanksgiving sales, it's not to put everything in your shop on sale. It's to get rid of and liquidate, turn back into cash. holiday or seasonal specific product that we don't want to sit on for another year.

Yeah.

Um, and, and I agree with you too, like the January, like January sales are getting rid of that stuff because when— and you come from this background, me too— in retail environments, there's transitions where the shops and stores are starting to move even though this, the weather outside hasn't changed.

Yeah.

This, the internal store starts to change. Like spring will appear before The snow is melted.

Yes.

Um, in retail. And so we really have to be aware of— and I love that we have big brands to follow because they've got the billions of dollars in the marketing research. Yeah, so I guess what I want people to know is don't be afraid of sales in the season, but it doesn't have to be everything.

Yes.

And that there's a reason why you would put something on sale, which is ultimately to turn it back into cash.

Yeah, absolutely. And just, and just be really clear as to what whatever goes into the stock clearance sale, this is what you are no longer continuing with in your business. So it's almost like you— we used to call it hard markdown. So basically, when I worked in big corporate retail, I mean, I spent millions of hours of my life looking at sale proposals. And basically, especially in fashion, everything goes into the sale that's seasonal. And I remember going shopping with my mother and her saying, oh, I wonder what's wrong with these things because they were on the sale rail. And I was like, no, there's nothing wrong with it. It's just that this is getting towards the end of the season and they need to clear it while it's still relevant rather than sitting on it as deadstock. So they would call it terminal stock, or memorably, one company would call it dross, which I always thought was like the worst word. But it was basically the big retailers, they're really super hyper-focused on their stock levels as well. And one of the biggest things for me that was interesting coming into smaller businesses was that in a big retailer, you have a stock target for the end of the month. So, at the end of, you know, tablets, they would've been like, okay, at the end of January, we are gonna have $400 million of inventory. Okay. And that's agreed, and that's signed off with the CFO, and it's signed off with the bank because they're gonna be in their credit limit too, you know. And then, if you get to the end of January, and you've got $440 million worth of inventory, the merchandise control team's getting fired. Like, they don't mess around. And so, we would be going, okay, well, what can we do? What do we delay, pull back so we don't— or what do we discount? What do we move so that we hit those end-of-month targets? And I think, for me, the biggest kind of lightbulb moment as to why a lot of small businesses get themselves in these situations with their cash flow was that small businesses don't set themselves targets. They don't say, like, okay, at the end of this month, I'm gonna have, you know, $100,000 worth of inventory, and if I don't, I'm— well, you can't fire yourself. But, you know, it's like, it was such a hard line. Like, I, I, you know, we would sweat bullets for the, for the end-of-month trading meeting. Like, have we hit the number? And sometimes we'd be on the phone with the warehouses, like, don't let the container book into the systems, you know, so we could show the right number to the finance team, et cetera, et cetera. It was such a big deal. People's jobs were literally on the line. And then you come into a small retailer and they're like, yeah, I didn't sell it all, but I'm going to buy some new stuff. A

little bit more stuff. I had an idea.

Yeah, I had an idea. Or somebody once told me that they could— it was a multi-generational business and they said that their mother's mantra was, you can't sell a smile. So they would bring in all this stock. They had so much stock because they were like, well, you can't sell a smile. You're

like, no, but you can sell the stock that you haven't sold yet.

So, actually putting the brakes on and saying, no, I am not going to have more than this amount of stock in my business, whether that's 3 months, whether that's— I mean, if you're at 12 months now, don't try and get yourself immediately down to 3 months, but you can kind of gradually look to bring it down over time. That can be so powerful because suddenly it's no longer just, oh, I just keep adding to the pile. Now it's like, okay, what am I going to do with this? And then you have to get creative. Then that's when you have to look at the stock clearance and, you know, promotions. I agree with you. I often say, you know, promotion is another conversation that you get to start with your customers. So what conversation are you starting? It could be something additional like a free gift or a 3-for-2 or a multi-buy. It doesn't have to be a straight discount, but It's just about coming up with these ideas and these thoughts about, okay, what, what promotional message do I want to push now?

Absolutely. And again, you know, I remember I had a client that had this one— it was a more expensive product that she sold. It was one of the more expensive things. And she was thinking, they're not buying it because it's so expensive. Like, she made all these assumptions about

it.

And we went back to her and we're like, have you talked about it? Like, have you even focused on it? Have you mentioned it? Have Promote it? Have you put it on social? She's like, no. Literally within 24 hours she sold it. And, and I think, and I think that the thing that I want you all to hear from this conversation is that it's being proactive and planning and setting goals and working backwards from that versus reactive and flying by the seat of your pants and just making because you felt like it and then hoping that everybody knows everything that's going on in your business and they're, they're spending any time thinking about it. And so what you're saying is, and, you know, in bigger companies they talk about it as velocity. So if we were selling to Target or, um, a department store, they're asking if they were buying from my brand, they're asking the velocity in which it flies off their shelves and into customers' hands. Yeah. How fast does it move in terms of inventory? And I think a lot of, maybe a lot of people that are listening to this are thinking, well, Jacqueline, you know, Like, Katherine, I don't know what's gonna sell. And that's usually because they're not planning. I have— I want to make X amount per month, or I want to make X amount this quarter. This is the product I'm going to sell. This is the way I'm going to sell it. So these are the weeks I'm going to talk about, you know, I'm going to start the conversation like you said with them to move the pink products or the stuff that smells like pine or whatever it is. So I'm going to actually tell them what to buy. I'm going to put it in the front of my booth. I'm going tell my retailers to buy this. I'm gonna put it on my homepage, and I have a plan to move that inventory. So what's it going to take to move it? How many emails am I going to send? Am I going to post social? Am I running ads to it?

Do

I have a, a team that's going to be promoting it? So there's so many bits to it, and I think that's why really here at the Product Boss we've been really working— and I love the component you're bringing to it— is helping them build the business behind the Yes. Because it's the creative part. That's the, like you said, it's the fun part. But the business side of it is the part that so many people miss and feel, I would say, sometimes even victim to it. Like, like it's doing this thing to me versus, um, I've created a plan with numbers and now I get to execute on that plan. And then when it doesn't work, like you said, what's my plan for that to move the inventory to turn it back into cash?

Yeah, completely. Absolutely. And I think also, it's your money that you've put into your pocket to actually purchase the stock. So I do understand why people get attached to things and why it can feel really difficult if you design something and you've had it manufactured and then you think, oh my goodness, and now I have to sell it and sell it at less than I— well, hopefully not less than what you paid for it, but you have to discount it. But the thing is that ultimately that is the way that a business a retail business works. They have to turn the stock. You have to make enough money every time you make a sale and you have to turn your stock. And those are the 2 things that 90% of the time when I look at a business that isn't as profitable as they like, either it's their profit margins or they've got too much stock. The relationship between their sales and their stock is just way out of whack. And therefore, you can release a lot of that stock over time. We have a stock management service called Stock Doctor where you work with people and they actually go through and help and support you. And we've seen people who've grown their sales with 45% less stock because they had the stock that was working and they had systematically slimmed down and trimmed down. And you can imagine what kind of impact that has on people's cash flow when they're not, they're just not putting as much money back out there into stock and then they're able to keep it in the business And they're able to pay themselves and pay for advertising and pay for assistance and all of these other things. Whereas when it all just gets— I think there's a real misconception that the more stock you have, the more sales you do. And I just think that the more we can break out of that and really think, as you say, about being proactive and having that system. And I love what you said there about not being a victim to it. I think that that just means that you build stronger, more resilient businesses. That will reward you financially.

And it really aligns with what I talk about in terms of bestseller. People think when I say bestseller, it's one singular product, which sometimes, like if you're a shoe company and you came out with a certain shoe and you have different variations, or you're, you know, Kendall Jenner and came out with a lip kit with different colors, or it's, you know, if you're in apparel, it's like, what are the main styles? What's the core collection? And in, when we're ordering inventory and knowing it, we know I'm gonna order more of the thing that sells more of it and then less of the other thing. Would you say, if you could advise someone, would you say like 10 products or 100 products?

Well, I'd say generally— oh, what, like should they have 10 or should they have 100?

Yeah, like if you're like, if I could pick one or the other for you to sell through, like have 100 of them or have 10?

I think that generally speaking, um, you know, 80% of your sales will be coming from 20% of your product range. So I would say that usually the biggest culprit when we look at businesses is that they've gone too wide and not deep enough in the bestsellers. So it's really about deep on a narrow number, exactly as you said, of bestsellers. And it's hard, especially if you've got a physical space. You can't— it's a little bit different. You have— there is— that's why they call it the art and science, right? So it's not necessarily just like you do this one formula and then that is it and then There's other things about, you know, the customer likes to see a little sort of dressing around things, but I think try and keep the stock that you're holding in things that are not your absolute bestsellers, try and keep that to a super real minimum, an absolute minimum. And then the other thing I would say as well is that please only reorder things that are true bestsellers because the number of times people will reorder something that is kind of mediocre, you should always be trying to find your next bestseller. So if it's a bestseller, reorder it. If it's kind of okay and you eventually sell through it, please don't buy it again. I always think of this story of a client who, they had a clock on the wall in this, in a home store, and eventually after 3 years, this clock sold and they were like, oh, thank goodness it sold. She came in the next day and her business partner said, oh, I've bought another one. We sold that clock, so I bought another one. She was like, No,

we finally got rid of it.

No, we finally got rid of it. So really, I think, um, I would say more narrow, more depth on the best items, less stock tied up in everything else, and don't reorder things that— like you say, you want velocity. That is what you want. You want things turning, you want it quick, you know. You really don't want to be sitting on— you want as much of your cash in your pocket and not in your stock as possible.

Absolutely. I think it's just fantastic. Like, I, I would love to have you as a guest inside of The Collective. We have guests and experts that come in, and I think you'd be so beautiful in there. So, um, we'll talk about that after this call. But so here, here's the deal. Everyone's like, oh my gosh, can we have more of Catherine? She's amazing. Um, and you have a podcast, The Resilient Retail Aim Plan.

Resilient Retail Game Plan, yes.

And it's anywhere you listen to podcasts. You guys are literally listening wherever you're listening to this. Just when this ends, go look it up, or we'll put a link in the, in the show notes so you could just go click and then go over there and make sure that you follow the show, that you're subscribed to the show. But how else, if you know people are listening and we've got global listeners, so they're in the States, they're everywhere, um, how can they work with you? You've mentioned Stock Doctor, like, give me more.

Yeah, well, I've got my book, Tame Your Tiger. Here it is, Tame Your Tiger: How to Stop Your Product Business Eating You Alive. You can get that on Amazon, you can get it on Kindle. The only thing I don't have is an audiobook, and I do need to record that because everyone always tells me that, why don't you have it as an audio? And then I'm on Instagram a lot, Resilient Retail Club. And yes, my main way of working with me is through Stock Doctor, where we have retail professionals who have got 15 to 25 years of retail experience who will actually come and run your numbers for you. So they will— it's not a— I felt like I'd created lots of information for kind of doing it yourself. This is a done-for-you. So they will come in, they will actually look at your inventory, and they will help you optimize it. And yeah, we've had great results. It literally pays for itself because we can run the numbers on it, because people, they get more sales with less stock. And it's just been hugely beneficial. As I said, people say it's like the missing puzzle piece as you're growing. You've got someone who knows all of this stuff because let's face it, you want to be spending more time doing the fun creative stuff. So if you need a Stock Doctor, if you want more sales, less stock, more cash, less stress, then head over to stockdoctor.net and you can find all the details there.

Amazing. We'll drop that in the show notes. And I think you might have a little freebie for—

I do, yes. If you head over to resilientretailclub.com/freebie, then I have got a PDF and video explainer on the how to clear your deadstock without killing your brand method.

Oh, so good. This is incredible. I'm so honored and grateful that you were here and how generous you were with everything that you shared. Um, I can't wait to hear from our listeners, like, how much you guys love show. So make sure to send us messages on Instagram. Let us know that you love this if you want more. Um, and, and make sure that you're following her show. So thank you so much.

Thank you. Thank you for having me. This is so fun.