Catherine Edley [00:00:00]:
Do you know how much money you have trapped in your business? Most product business owners that I talk to want more money in the bank. But what most of them don’t realize is that they are already sitting on that money. It’s just in the form of stock that isn’t really doing anything, that is hanging around in the back of their stores or in stock rooms or in their studios in boxes out of the light of day. The stuff that just isn’t really doing anything. And you’ve spent money to acquire it, but now it’s just sitting there and just eating up space, space and money and effort. Welcome to the resilient retail game plan. I’m Catherine Edley and in the next few minutes, you’re about to get powerful real world retail strategies from insights shared both from my guests and myself, backed up by my 25 years in the retail industry. Keep listening to learn how to grow a thriving, profitable product business.

Catherine Edley [00:00:53]:
Let’s jump in with this latest episode. A few years ago, I met somebody who used to run a shop. It was when people were paying with a lot of cash, so they would collect the money from the people coming in to buy their fashion accessories and then they would take that cash and they’d go up to London and they’d go to wholesalers and they’d buy more things for their shop and then they take it back and they would put a lot of it into the stockroom. And eventually they decided they’d had a good time, they had a good run, they’d enjoyed running their shop, but it was time for them to do something else. So they closed it down. They sold off all the stock, but they had all of this stock that was sitting there in their stockroom that had never even made it out of the packets or the bags that they’d used to buy it in. So it was completely pristine. So instead of selling that off cheap, they decided they were going to take that with them to their new life and then they were going to put it on to ebay or somewhere like that and just sell it off bit by bit.

Catherine Edley [00:01:50]:
So they ended up taking these big plastic boxes full of stock to their new home and eventually got round to sitting and listing it all. And what they found was once they listed it all out, they had over £7,000 worth of stock in those plastic totes that had never even seen the light of day. So it hadn’t even been out on the shop floor. It was just stock that they had bought and that they’d put to one side. And that is £7,000 at cost. That’s what they estimated that they had spent on it. That story really stuck with me because it’s something that I see time and time again. People will buy things, they’ll put them to one side.

Catherine Edley [00:02:29]:
I work with people, for example, who make their own products, who maybe have big box of components. They need to make a product that they just haven’t done anything with because they changed their mind or they didn’t want to do something with it, or they did something else instead. And as a result, this is just hanging around. I also see it when, for example, I’ll talk to designers who maybe have created some prints or cards or something that they’ve been trying out various different things. So lots of samples, or maybe they had some issue with the print run. So there’s some product that’s pretty nice, but there’s a slight error or a slight fault with it or something like that. And it seems like maybe not the biggest deal, but over time it can really, really add up. And I think the key thing that, that a lot of people don’t realize about unproductive stock is that it goes beyond just financial.

Catherine Edley [00:03:24]:
So, yes, from a financial perspective, imagine that she had £7,000 sitting there in stock that she just didn’t even put out on the floor. And I think most of us would agree that if we had £7,000 extra in our business, that would be very nice. But the thing about dead stock as well is that it’s not just the financial. It takes up money from your bank account, but it also takes up physical space, it takes up mental space, and it takes time and effort as well. And what I mean by mental space in particular is that quite often people will tell me it is hanging over me. I have this stock and I know I need to shift it, and it is actually hanging over me and it’s taking up mental energy. And I have worked in the past, particularly with fashion boutiques, for example, where the weight of this extra stock, it was really dragging them down because they were having to rearrange it. So every time they had a sale event, they would have to go get it, bring it out, or they would have to shuffle things around in their storage or something else that happens is if you keep things in storage for long enough.

Catherine Edley [00:04:33]:
I remember the very first time I went on a store visit in my career was when I worked at Laura Ashley. And I went on a store visit to this shop in Wales, and they had lots of stock in the stock room in this beautiful old building. However, mice had eaten all the tassels off the cushions because they were in the stockroom for too long. There’s a lot that happens that it just gets stressful. It’s like having a cluttered house. You know when your house is just full of stuff and you have to constantly edge around it, work around it, it gets really stressful. And it’s the same in your business with products. It’s the same when you have to just be aware constantly of the fact that you’ve got this stock that you know that you need to be doing something with when you just really, really want to have a clean slate.

Catherine Edley [00:05:25]:
So trap stock, it’s a real operational problem, not a theoretical one. And today we’re going to talk more about how to find it and how to start releasing money back into your business. Let’s define trapped stock. So trapped stock, trapped cash is stock that you’ve paid for but isn’t selling. Stock that you wouldn’t order again, stock that you’ve stopped noticing because it’s been there so long. This is a conversation I’ve had with several people over the years about the fact that it’s almost like they become blind to it and stock that’s too emotionally charged to deal with. And this is another one, a lot of people actually have a real level of shame around stock that is hanging around because it could represent something that they thought was going to be good and wasn’t. It could represent a decision that they made that they regret.

Catherine Edley [00:06:20]:
And of course, we have the sunk cost fallacy, which a lot of people have in many areas of their lives. But it can particularly hinder you in retail. So the sunk cost fallacy is basically the idea that since you’ve paid money for something, you really should be doing something with it. You kind of got to keep going, or as I sometimes like to say, throwing good money after bad. Yes, it can be to do with seasonal slow sellers. In the last episode, episode number 277, we talked about how you make decisions about slow sellers during your seasonal sales. So if you’ve got slow sellers, think about what you could do. If you’re not into discounting, if you don’t do offers at this time of year, then perhaps could you focus attention on them more, try and push them more, try and make them more of a feature.

Catherine Edley [00:07:12]:
So it goes beyond this. It could be slow sellers for your current seasonal sales, but it could also be way older than that. And if you’ve been running your business for several years, the chances are you are going to have even More. More trapped cash, trapped stock than, than people who are just starting out. So what is the real cost? Well, the real cost is, first of all, financial. So every pound that you’ve got tied up in stock is one pound that you don’t have in your bank account to top up your bestsellers, fund your marketing, pay yourself. So one of the key principles of managing a successful product business, making it profitable, is that you cut off the things that aren’t selling, you clear through them and you get that money back so that you can reinvest into your best sellers. It’s quite possible for me to simultaneously see people who are spending too much on stock overall and not enough on the stock that actually makes a difference.

Catherine Edley [00:08:08]:
Trapped stock really plays into that, that becomes an opportunity cost that this one’s harder to see sometimes. But basically it’s the sales that you’re missing. By not investing in those best sellers, the business feels stuck, and that is because the money is stuck. As I mentioned, the other major issue with trapped stock is the mental load. So having cluttered stock rooms can be really stressful and it also can make it feel really chaotic and a real time drain. Anytime that you’re having to spend time navigating old stock instead of selling new stock, then that is really counterproductive and works against you as a business owner. And I’ve even known people who’ve expanded their storage facilities, they’ve taken on extra storage units, they have taken on bigger premises because they needed somewhere to put all their stock. Whereas actually what they really needed was to clear through that stock and really get rid of anything that wasn’t serving them be more lean.

Catherine Edley [00:09:12]:
And then they didn’t actually need this extra space. So if you’re in a situation where you think to yourself, I really need extra space, you have to ask yourself, do I really need it or do I have extra stock that I could slim back? Now, of course, I’m not saying people don’t need storage, of course you do. If you’re a higher turnover business. Of course you need to somewhere to put things as the stock is flowing in and then going out again. But it’s always a really good question to ask yourself. It was one of the things in, you know, big retailers, they’re constantly looking at their capacity in their warehouses. For sure. One of the things that we had to do was go through the warehouse.

Catherine Edley [00:09:48]:
In fact, I’ve been sent to warehouses all across the country at various times to go through the stock that’s there and pull it out and send it out. To stores almost manually go through and say, right, this needs to come out. These are odds and ends. These have to go so that they could keep the capacity down. You really want to make sure that you are not hoarding. Don’t be a hoarder. Make sure that you are being really clear. If you’ve got this dead stock, that you’re not just buying extra storage in order to put your extra stock in, What happens? Why do people end up with this dead stock? Well, there’s lots of different reasons, and I certainly have seen all kinds of reasons across the spectrum from working with people one to one, and also during our stock doctor audits, where we go through your stock and have a look at where those trapped caches and give you suggestions to clear it.

Catherine Edley [00:10:44]:
But I’d say probably the number one is buying on guts, not data. And it’s not even that people don’t have access to data. But it’s really hard often, I think, to look at the reports and work out what the report is actually telling you. Definitely using your intuition as opposed to hard numbers can get people into a sticky situation. Second is not having a stock plan. I’m a big, big believer in having a stock plan. And I’d say the vast majority of retailers that I meet before we work together don’t have stock plans. So therefore, they don’t have an idea of how much stock they should have.

Catherine Edley [00:11:20]:
And that number can then start to snowball for sure. There are issues with suppliers if you’re buying with minimum order quantities that are too high that make you buy deeper than you really want to. Another real issue is what I call shiny object product development. So that is essentially not wanting to dig in and clear out old stock, but instead being more interested in going ahead and buying new stock. Not having a routine for reviewing existing stock and clearing it is something else that really holds people back because they tend to be out of sight, out of mind. I don’t know if that’s something that resonates with you, but you kind of think, okay, all right, I’m gonna put this to one side, I’m gonna pack it away and I’ll definitely get it out next time. And then you forget you’ve got it. And then all of a sudden you’ve got all of these boxes or all of these things or a drawer full of stuff that you just don’t really.

Catherine Edley [00:12:09]:
You’d forgotten about. And, you know, it can take time and effort to pull that out, price it all up and get it sold. So people sometimes just find it Easier to ignore it, but that’s where these pockets of cash end up getting trapped. And of course, we’ve got the emotional side. People can feel embarrassed because something’s not sold that they thought was going to sell, or they’ve got the sunk cost fallacy that they need to keep trying to push it at full price because that’s something they’ve bought instead of thinking about, no, I just need to clean this out. Everybody overbuys people with retail backgrounds who run retail stores over buy. I remember having a conversation with somebody who was a business consultant. He was working with a couple of guys and he was like, I can’t really understand this.

Catherine Edley [00:12:50]:
They’ve got this business, it’s doing really well, but they just can’t pay themselves. There’s no profit. And I said to him, without knowing anything about them or I said, they’re buying too much stock. That’s, that’s my prediction. And he said, oh, I don’t know about that because they’re from a retail background and I feel like they would know that. And I said, well, unless they’re actually from merchandising, which is my former department, and the team of people who make sure you don’t over buy and focus on profitability, I said, unless they come from that background, they’re almost more likely to be over buying. If they’re from the buying background, they are going to be used to buying, but not used to reining in. And lo and behold, I saw him a few months later and he told me I was right.

Catherine Edley [00:13:32]:
So he said, yes, actually, it was too much stock. So if you feel, oh, I should know this better, and I can’t believe I’ve got myself into this situation, or I really don’t want to deal with this extra stock because it makes me feel bad, don’t feel bad about it. It’s not something that most people are familiar with. I remember going to Amsterdam with my son a couple of years ago and I walked into the shop and honestly, there were piles of stock from floor to ceiling and I was terrified to move in case I nudged something and it all came cascading down. I mean, that was probably the most overstocked shop I’ve ever been in my whole life. But you see it all the time. Don’t feel bad. This is what happens to vast majority of people with retail businesses.

Catherine Edley [00:14:17]:
But the good news is you’ve identified the fact that you’ve got stock that you want to clear out and that means you can do something about it. So big retailers, they have A completely different discipline. They are looking at this stuff weekly. They have really hard rules on not just how much stock you’re allowed to have, how many weeks worth of stock, but then also they just write it off. If it gets older, especially when I worked a paper chase, for example, paper gets damaged and shop soiled. We would write it off after it was a certain age because they knew that hanging onto it would cost more in terms of space and staff time and everything else. And after a certain amount of time, they figured it was probably damaged and they should write it off and see what they can do. Indie retailers, obviously you have spent your money to buy this product or to have it manufactured, so it makes sense that you’re more precious over it.

Catherine Edley [00:15:12]:
But there does have to be an element to which you have to look at it as that cash. So think about that item. If it’s a £20 mug, think of it as a £20 note and then you’ll get a sense of where the money is trapped. In a couple of weeks, I’m going to be doing an episode all about how to run a stock clearance sale. So I don’t want to get into that today, but have a think about what you’ve got in your business. Start looking around. What can you identify? What’s dusty, what have you moved around but not sold? What. What were you sitting on this time last year and you saw you would get through it but you still haven’t.

Catherine Edley [00:15:46]:
What’s still in the packaging it arrived in and what gives you a sinking feeling just looking at it. These are the kinds of things that you want to identify, that you want to then be able to hone in and say, right, this is the stock that I am going to release. Have a moment of truth. We are approaching January, which is a great time to have a clear out, and we’re going to be talking more in a couple of weeks about how to actually do that effectively. But first off, I just want you to have a look at where that stock is trapped. And as I said, don’t get sucked into the emotional side of it. Don’t let yourself feel bad. Don’t just try and be really objective and try and think about what you’ve got and how you can start bringing it down and getting that under control.

Catherine Edley [00:16:31]:
It’s okay to release the stock that’s not serving the business. It doesn’t mean you failed. It means you’re building a healthier business. It’s not your job to cling on to past decisions, but to respond to what the numbers tell you now and to take action while you still can before it gets too damaged. Where you can sell it, even if you’re selling it in samples and seconds. But you can make the most of your hard earned cash that you’ve put into this stock with and make sure that you are able to then clear it out and create some space and some breathing room for you. You’ll feel lighter, everything will feel clearer. You’ll have money freed up in your bank account.

Catherine Edley [00:17:05]:
There is really nothing but upside when it comes to clearing out old stock. That’s my challenge for you this week is take a few minutes and have a look at how much Trap stock do you think you have in your business? Don’t forget how quickly it can improve your cash flow. If it is something that is suitable for this time of year, I’m going to challenge you to pull it out, put it in front of your customer, shout about it. Maybe you’ll even pick up some full price sales in the run up to Christmas, especially if you’ve run out of something else that you can’t get but you want to see if you can push something else. Then make sure that you’re doing that. Give it a go. And if you want help diagnosing exactly where your stock is trapped and a clear plan to turn it back into cash, then it’s exactly what we do. Inside Stock Doctor so if you would like to check out resilientretailclub.com stockdoctor you can book in to have a chat about getting a Stock Doctor audit planned for your business.

Catherine Edley [00:17:59]:
If you have a moment to follow or subscribe, then you’ll be the first to know about each new podcast episode when it comes out every Thursday. See you next week.