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New Rules of Supply and Demand: Sacrificing Inventory To Save the Store
CNBC.com | November 29, 2011 | 03:53 PM EST

When John Goldman strolled through his Rhode Island jewelry stores, he used to see every piece on sale as an asset. The pricey silver necklaces gleaming in display cases until they sold as special gifts — all were assets. So were the $19 earrings that thrifty shoppers snapped up quickly.

Now Goldman knows that some of his glittering stock can sink his business, an independent chain called Green River Silver Co. whose rapid growth stalled after the financial crisis of 2008. As sales ebbed, Goldman hired consultant Ted Hurlbut, who told him his heavier necklaces were dangerous liabilities. That stock was weighing down profits while it sat unsold.

“Ted suggested that we literally liquidate it,’’ said Goldman, who got cash from silver dealerships that melted down his less attractive heavy jewelry.

Goldman is one of the small business owners forced by the recession to focus on the exacting discipline of inventory management, the art of fine-tuning the mix of stock on hand to maximize profits. Even in good times, slow-moving inventory like Goldman’s necklaces ties up capital. It can also carry other costs, such as warehousing. Now, in the current climate of tight credit and weak consumer demand, excess inventory can threaten the survival of both tiny companies and huge ones.

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