Inoculate your business from the long-term effects of COVID
By Mark Pardini, Contributor
There is a term for people who suffer from the effects of COVID-19 for months or even years after contracting the virus: long COVID. But the pandemic can also have a long-term impact on your business when it comes to managing your inventory.
We all know that procuring appliances was difficult during the pandemic period. Some categories, such as wall ovens and cooktops, were especially hard to get. In addition to scarcity, wholesale prices went through the roof and products were on back order for months. Most of us routinely placed orders for items whether or not we needed them right away, just to get it in the queue.
When (and if) the goods became available, you were forced to flip a coin to decide whether to take some or all of the product you ordered. Stocking the warehouse became a guessing game; if a customer showed up wanting what you had in stock, you were a winner. If not, you were stuck with it, and in some cases for a long time.
Fast forward to today’s market. The script has been flipped. Manufacturers are again back to fighting for market share. Prices are falling, margins are thinning and virtually all inventory is in stock and readily available. We have returned to the days of battling the box stores for sales.
But what if you still have some cooktops and wall ovens left over from the COVID days of scarcity? Your salespeople don’t want to sell them. ‘Why not?’ you ask. You may have them in stock, but the wholesale price is higher than the advertised retail. The default for salespeople is to order a less expensive model and make a better commission. As a result, you still have overpriced inventory just sitting in the warehouse.
But there is a simple solution. As you may recall from Accounting 101, the FIFO principle (first in, first out) makes fiscal sense — your oldest inventory should be moved out first. Don’t order lower-cost inventory until the older stock is gone, regardless of what you paid for it. Pay the salespeople enough to move the more expensive models that have been collecting dust. Point being, your inventory turns are more important than a few dollars of lost profit.
Years ago an Illinois dealer named Ed Knodle, who served as COO of the old MARTA Cooperative of America buying group and executive director of the North American Retail Dealers Assn. (NARDA), held seminars across the country called “Cash is King.” His principles are still relevant today: turning your inventory four times doesn’t work. Ten or 12 turns in today’s market should be your goal, especially with wholesale price deflation likely to continue through December.
The pandemic warped our perception of consumer purchasing habits. During that three-year period customers would simply buy whatever you had on hand. It will likely take us a while to revert back to our 2019 mentality and tighten up our inventory strategy.
Furthermore, I suggest that manufacturers use 2019 numbers as our sales benchmarks and not the pandemic-inflated figures of the past few years. If you are doing better now than you did in 2019, you’re doing well.
Nonetheless, it is high time to unload all your excess COVID-era inventory — yes, even at a loss. By doing so, you too can be the “King of Cash.”
Mark Pardini, owner of Pardini Appliance & Mattress in Ukiah, Calif., is a 48-year veteran of the appliance business. He served as BrandSource president for three years, represented the Pacific Rim Region on the national board for 20 years and entered the BrandSource Hall of Fame in 2022. Write him at mark@pardiniappliance.com.
