When it comes to inventory, it’s hard to know when to cut your losses.  I was at the lumber yard the other day and they had 1,000 board feet of mahogany  –  beautiful wood that happened to be exactly what I was looking for.  They were trying to get rid of it for inventory and basically gave it to me (the price was about 80% off what they normally sell it for.)  They had had the wood for a year, and decided it was time to unload it before inventory.

Which brings us to the obvious question:  why did they wait a year before they marked it down?  Why did they take such a deep discount? (I probably still would have bought it at half off or even 30% off.)  Why didn’t they start six months ago marking down a little here and a little there.  Granted, I unburdened them of their entire problem, so that’s worth something to them.  But again, why not start sooner and trickle it out?

It’s like anything else.  If you wait until the last minute you take a bath.  Wal-Mart doesn’t do that.  After XX days in the store, it starts to get marked down slightly.  Then after XX more days, another discount.  And so forth until everything is gone.  I guarantee you Wal-Mart doesn’t sit on anything for a year then sell it / give it away.  It’s about turning your money.  The principle applies to retail, wholesale, and everything in between.  There isn’t an industry that doesn’t benefit from more turns.

Don’t sit on your inventory.  If you made a bad buy, mitigate the mistake sooner rather than later.  Don’t sit there in denial thinking it will just go away.  It doesn’t get better, it only gets worse.  When you have a dog (we all have them,) start now to fix the problem.  I helped one company that had over a million dollars in “dead” inventory.  At some point they may have been able to mark it down and sell it.  But by the time I got there much of it had passed the expiration dates and was no longer any good.  They could have sold it, but procrastinated too long and lost everything.  Taking a few percentage points less than you thought you were going to get (or even taking a small loss) is better than taking a million dollar hit all at once.

Plan ahead.  Decide in advance how long you’re going to sit on inventory before you start to reduce the price and get it out of there.  Don’t get emotionally attached to your inventory.  Be ruthless about controlling your inventory and you’ll have a lot more money to do the other things you want to do.  There’s a time to stand pat, and not waver.  But inventory is not the place to make a stand.  In the immortal words of Les Case, “When in doubt, blow it out.”