Avoiding the guessing game: excess aboveground pool inventory can leave a retailer strapped for space … and cash. Here's how to minimize the problem

Pool & Spa News, Dec 10, 2004 by Julie Sturgeon

Aboveground-pool retailers can relate well to the cell phone commercials where an adult takes grade-schoolers to task for going over their monthly macaroni allotment or incorrectly guessing the number of minutes they'll play with a ball.

But the fictitious penalties charged in those clips are child's play. Aboveground-pool dealers risk losing thousands of dollars when their orders miss the mark.

Just ask Max West, vice president of East-gate Pools in Cincinnati. At the end of the summer, he found himself with a warehouse stuffed to the gills and spilling into the aisles with leftover aboveground pools, as well as the foosball and air hockey tables he plans to sell this winter.

Naturally, he didn't intend to store both simultaneously. But a cool, rainy summer discouraged pool sales and now he's left holding the bag. To rub salt in the wound, he's looking at paying inventory tax on all of it come Dec. 31.

Yet he'll likely follow his plan of placing early orders through his buying-group membership in 2005 as well. After all, next year could bring broiling temperatures and, with rising steel prices, he prefers to try his luck with today's cost as opposed to tomorrow's. "Sometimes it's like rolling the dice and hoping it doesn't come up snake eyes," West says.

Like West, many aboveground-pool retailers take a gamble each season when it comes to inventory. Some stock up in hopes that the weather will bring big sales. Others keep their orders to a minimum, counting on last-minute deliveries to handle any surge in demand.

Whatever the strategy, veterans say there are effective ways retailers can deal with inventory issues before and after situations arise.

Managing the stock

Inventory control doesn't rate as the sexiest subject--even the majority of small-business start-up courses don't address the details, notes Wally Bock, a retail consultant in Greensboro, N.C.

Yet it's usually the first thing Bock deals with on the job. "The clients say they're not making any money, and I suggest looking at the inventory," he says. "Then they give me this puzzled look.

"A retail manager has to manage inventory. It's money on the shelf you could spend for other things," he adds.

The problem is insidious: You buy a few extra pools today, a few more pool kits tomorrow, and then spring on a great chemical deal next week. Pretty soon, you're stuck with shelves full of products you bought just in case, says Bock.

Unfortunately, retail consultants can't offer a tried-and-true formula for inventory balance--merely suggestions. Most do recommend being proactive, taking steps to ensure that inventory doesn't pile up in the first place.

Buy less, save more.

When helping clients with inventory problems, Bock's logical first step is to cut the amount that retailers buy. He usually suggests 20 percent. Defining that reduction in terms of dollars or line items is the retailer's choice.

To make the cuts, Bock recommends ranking products in terms of cost, profitability, most recent sales and the like. By doing this, retailers can quickly see which inventory items they truly need and which can be cut to make room.

The next step calls for inventory management. Bock recommends that retailers sort the products they sell into A, B and C categories:

* "A" items represent the most popular and profitable items that must always be in stock.

* "B" list items are important, but the business would survive an occasional outage.

* "C" items, at the bottom of the list, don't need to be replenished until after the entire supply is sold. Bock usually suggests retailers drop them altogether when he visits for a quarterly checkup.

"Once you get into it, the techniques aren't that tough," Bock says reassuringly. "By my third visit, retailers are telling me 'I was going to buy this or that, but then I thought about how long it would have to sit here.' it's an awareness issue, really.

"For a lot of retail businesses, [proper inventory management] is the difference between the profit that will send the kids to college and worrying about whether you can make payroll."

Turn on the technology.

Gary Ruffing, senior director at BBK, a retail consultant group in Southfield, Mich., is a big fan of software packages as allies in tighter inventory control.

Look for one that offers a data system rather than just simple inventory-control modules, recommends Ruffing, the former vice president of store operations for national chain Kmart. For starters, retailers should be able to track the item, the sale date, the purchaser and more.

That way, he says, "you know who's buying when and can bring in inventory based on that. Also, if you do get an opportunity for an early buy, you can then market more directly to the people likely to buy it."

An extra bonus: Most software includes a feature that crunches the sales rate of all the products and when their sales historically stop, Ruffing says. It then estimates markdown schedules so retailers can maximize their sale-through profitably without losing entire margins in blowout clearance sales at the end of the season. Link that to an ordering strategy, and a fair share of cash can he put back into the registers.