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Large Retailers Pass on Their Excessive Inventory Problems to Small Business

Wednesday, August 03, 2011   By Mike Reddy


There's an old rule of business that if you treat your customers well, they will reciprocate.

What you are not supposed to do is to pummel your customers into the dust. Yet as a business coach I reckon that's exactly the impact that the big retailing giants like David Jones and Myers seem intent on doing.

Their recent strategy of having a perpetual sale is achieving little. Gone are the heady days of crowds lining up to save 50% or more in the boxing day sales. The discounts are there, but the crowds are not.

In fact, they are probably making things worse for themselves. Using discounts as a strategy is about engendering excitement and impact. After a while it is replaced with a realisation that these new prices are now the norm. So it will be difficult to increase prices without causing another slump in demand which must feel like a real headache in the making to the bean counters.

Business management 101 says if you find yourself carrying too much stock then formulate a clearly defined plan to put things right without devaluing your brand or suffering long term pain. As a business coach that's exactly what I would have prescribed anyway.

Price slashing and cost cutting should be last on the list, not first. They are too destructive to form part of a serious business strategy. It's a strategy that lacks the sophistication one might expect from the brains trust of the huge conglomerates that seem to be taking to an operational problem with a fix-it solution that will cause huge strategic problems in the not too distant future.

Certainly not out of the Shape Your Business coaching book!

By reducing prices larger businesses are making life very difficult for smaller businesses to survive. And Australian small businesses employ around four million people - many of them existing or potential customers of the larger firms.

The result is somewhat ironic - The strategies being employed by larger firms are a cause of the very lack of consumer confidence that, as sellers of discretionary items, they need in order to flourish.

They may have tested out some easier strategies to manage a reduction in stock in such a manner than their brand would remain intact.

Suggested (and less damaging) alternatives to correcting overstocking (taken from the Shape Your Business coaching book):

  • Having staff available to sell product - Why is it that whenever there looks to be a reduction in demand it is the sales people that have to pay with their job?
  • Losing knowledge is a tragedy. I will soon publish another article, this time on The Real Threat from the Internet which will provide commentary on this sort of strategy.
  • Retaining experienced staff to ensure customers make informed decisions
  • Having an expiry date on sales
  • Start with 10% off, then 20% off and so on, in order to protect overall margins
  • Looking at product "combos" such as discounting an entertainment unit sold with a TV rather than discounting everything
  • Free delivery/installation rater than ad hoc discounts - Perceived value is there but the cost to the retailer is lower
  • A structured means of offloading excess stock "offbrand" eg through auctions
  • Restrict discounting to slow moving or dated items.

Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.