Don’t Fall in Love with Your Inventory

No matter how many SKUs you carry in your pharmacy, your front end can be a profit center if you manage it properly. The key? Never get too attached.

Your pharmacy front end can be a profit center when properly managed. This is true, no matter if you have 100 SKUs or 10,000 SKUs or somewhere in between.

There are lots of ways to drive front end profits. There are also lots of ways to lose money and inhibit cash flow. Luckily, with the right tools and understanding of how inventory management should work, those opportunities for loss are quickly avoided.

In this article, we’ll discuss one of the most common pitfalls in front end management, and how to avoid it. What is this inventory bugaboo you might ask? It’s the trap that’s set when you get too attached to any of your OTC products or departments.

Hanging on to inventory that’s not selling is a mistake. Even if it’s a product you personally love, or your buyer was really excited about, or something you think everyone needs. If a product isn’t selling, you have to make a change.

First, let’s dive into why it’s such a bad idea to ignore product that isn’t selling. Dust bunnies aside, there are real costs involved, known as carrying costs. Carrying costs include inventory shrinkage from theft or breakage. Handling costs just to maintain a product on the shelf. The cost of storing and resetting if you decide to hold onto seasonal product to try and sell it again next year. And perhaps most importantly you have opportunity costs. This is the money you aren’t making because space on the shelf is taken up by product that isn’t selling. Space that might otherwise be used for merchandise that turns at a faster rate.

Inventory is an investment. You want it to turn and sell so you can reinvest and continue to build momentum and profitability. But what exactly should you do when product isn’t moving? What changes can you make before throwing in the towel? What can you do with unsellable inventory?  Here are the core considerations to help you get started.

Leave sunk costs behind.

Rule #1 in not falling in love with your inventory. A sunk cost is money you’ve already spent. It shouldn’t weigh in on future decisions. No matter what you have invested in a product, understand that you have to let it go if it’s not working for you.

Get the data.

Your POS system should be able to generate a report that will tell you what products, categories, finelines and departments haven’t sold, or have low sales for a specified period of time. This list will give you a starting point for evaluating, making changes, and tracking.

Set benchmarks for sales.

How long is too long for a product not to have a sale? Every store will be different, and I bet that every store owner or store manager probably has a gut feeling about how often most items should sell. A good rule of thumb is 30 days.  Sometimes there are products you carry year-round but just don’t sell much of during certain times of the year. For example, if you were a pharmacy in Washington State and you hadn’t sold sunscreen for 30 days in the middle of January, I wouldn’t worry too terribly much.  It’s just important to be aware of slower sales on semi-seasonal products and adjust your inventory level accordingly. Items not in a seasonal category will need some further TLC.

Review product placement and aesthetics.

Where a product is in your store can have a huge impact on sales. If you have products that you truly believe should be selling but just aren’t, try moving them around to maximize visibility. Try an endcap, an at the register display if possible, or in an area where customers wait to pick up prescriptions. Also make sure that the product is displayed attractively. A well lit clean display is massively preferable to a dark dusty corner.

Check out your competition.

Is the store down the road selling the product for less? If so, that could be a big reason why you aren’t making the sales you think you should be.  If you can meet or beat that price, give it a try. If not, it may be time to think about replacing the product with something different.

Try promotions.

Print coupons, send emails, run a BOGO promo. See if you can increase adoption with well thought out sales. Track sales before, during and after the promotional period.

Make strategic cuts.

Sometimes, no matter what our perception is, a certain product line just may not be popular enough to sell. Take a hard look at what’s not selling versus what is and consider strategic trimming of some lines and expansion of others.  For example, if hair accessories like headbands and bobby pins just aren’t moving but hair color products right next to them are flying off the shelves, shrinking down accessories and expanding hair color could make a nice improvement in your bottom line.

Clear it out.

For items that aren’t selling or seasonal items like holiday decorations, Easter baskets and July 4th swag, your first step is to print some sales signs and set up clearance sales in your pharmacy point-of-sale system. You might even consider putting seasonal items on sale a couple of days before the holiday, depending on what your competition is doing.  If you are near any sort of big box store, you can bet that their seasonal product is hitting at least 60% off the day after the holiday and they’ve probably been running specials at 30-50% off for the last 1-2 weeks.  They want the product off their shelves as quickly as possible to make room for the next round of seasonal items. This should be your goal too.

Decide to store or donate.

If clearance fails, you have a couple of options. Get rid of it or store it.  Storage may sound like an attractive option, but you’re taking up valuable space, risking damage or facing the possibility that the item may not sell again next year.  Our recommendation is to donate unsellable items to charity.  There are many options for these kinds of items, like schools, children’s museums or even nursing homes.

Got questions? We’ve got answers!

Comment below with your inventory management questions or call 877-767-1060 to chat with one of our inventory management experts.

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