Poor-sellers, stock clearances and opportunity cost

Bargain basement bins are great; everybody loves them. Most people have a dig through them to see if there is anything worthwhile, on offer. At face value, it looks like a good opportunity for a business; consumers come in for one item and they buy 2, maybe 3. At the same time, businesses get rid of their least valuable stock.

What’s the catch?

The fact is; it doesn’t actually make business sense. Many businesses are trying to release their cash held in stock, by stuffing their “shop floors” (or e-commerce sites), with items, that they know do not sell well. They have not calculated that there is a huge opportunity cost involved.

A quick example has been outlined below. The business has found that at full RRP, the product is not really selling, so they want to decrease their stock holding, considerably, or completely.

New product range A is obviously the one that the shop should focus on. The e-commerce store or retailer would be much better off concentrating on the display and promotion of this product range, rather than wasting valuable space on stock clearance A. This product range might only take up 20 sq ft of the shop floor, or two products on the home page of an e-commerce site, but that is prime space, which could be generating a much higher profit.

Things to consider

• “Stock clearances” that act as a loss leader are worthwhile
• Filling prime retail space with poor-sellers means that the sales volume of best-sellers is reduced
• There are other options to rid a business of “dead” stock: selling on eBay, to other stores in bulk and even back to the original wholesaler/distributor.
• Before putting poor-sellers in a prime position in a shop or on an e-commerce store, think about the effects it will have on current best sellers.