You’ve heard the adage: Less is more. Surprisingly, this minimalist approach can sometimes serve small-business owners quite well.
Inventory can be the trickiest challenge a small-business owner faces. It’s usually a company’s biggest cost when profit margins are analyzed by cost per unit.1 Basically, when you’re looking to maximize profit, you don’t want to have too much inventory sitting around. That puts a drain on resources, which can be deadly to cash flow, especially during busy holiday seasons.
Traditional brick-and-mortar retailers who adapt the limited-inventory approach and reduce their inventory benefit from needing less floor space — a surefire way to lower expenses. Online-only retailers who open showrooms or popup stores attract shoppers who like to touch, see and try the product before they buy.
So, how can you reduce the amount of money tied up in inventory by keeping less product on hand while still giving the customers what they want? Let’s look at a few examples.
Limited and no inventory
In 2013, fashion design retailer Kate Spade had been seeing some drop-off in customers. So it tried something new. In some locations, the retailer started offering a no-inventory store experience, with window kiosks, vibrant merchandising visuals and products available through local fulfillment. The upshot: Net sales grew the next year by more than 50 percent. How much of that can be attributable to this strategy is tough to say, but clearly it was a factor.2
Keeping a relatively bare showroom speaks to greater opportunities for traditional stores. If done smartly, you can reduce the cost of showing excessive inventory in your brick-and-mortar location while giving customers an experience that will keep them connected to your business for years to come.
The limited-inventory approach is also attracting businesses on the cyberspace side. Many e-commerce retailers are finding that employing an in-person presence pays dividends in customer loyalty. Eyeglass-maker Warby Parker finds that even though only 10 percent of its sales occur offline, those sales lead to valuable customer retention.3 So it uses a hybrid approach to inventory, with some options for in-store purchases and others for ordering online.
Other fitting examples
Bonobos, a menswear store, has become another shrewd adopter of the limited-inventory model. At Bonobos, shoppers are invited to browse and try on different styles of clothes in the brick-and-mortar stores. But instead of purchasing their selection at the store and bringing it home with them, customers order online and have the clothing shipped to their home.1
In this way, Bonobos is able to keep its merchandise at centralized distribution centers, which reduces the amount of inventory on hand — it produces less product overall, while quickly turning over the goods.
According to an article in The Economist, Bonobos carries one-fifth of the inventory of a typical specialty retailer and cycles through its goods about four times faster than the industry average.4
Zalora, an online clothes retailer in Singapore, has also joined the “try it and buy it” scene. It’s opened popup showrooms where shoppers try on clothes, chat with stylists, get a feel for the product, then order online either from computer stations or by scanning a code with their phones, using a Zalora app.5
If you feel the limited-inventory approach is a good fit for your small business, consider the following options and strategies:
- Start small. Before you dive into a full-blown showroom, consider testing the waters with a kiosk or popup store. This will give you an idea of your revenue potential in the limited-inventory market and what it’s going to take to be profitable.
- Invest less. When you buy products from a manufacturer or supplier on an as-needed basis, they’ll fulfill the order and ship the merchandise directly to the consumer. This method, called drop shipping, enables you to invest less capital up front for inventory.
- Set boundaries. Consider how much you should separate the e-commerce and brick-and-mortar elements of your business. Make sure it’s clear to consumers what products are available onsite and online. This will prevent consumer frustration.
- Track referrals. Establish promo codes to track referrals coming from your store’s physical locations and online site.
- Make it fun. Train a knowledgeable, helpful and friendly staff to provide customers with a unique — and fun — shopping experience.3
Best of both
For a lot of retail companies, both brick-and-mortar and online, the limited-stock or no-stock approach just might be the way to go. This new approach connects with today’s consumers, who are technologically savvy with online buying but still enjoy in-person shopping.
More from FedEx Updates
Find additional tips and tricks to improve your FedEx experience on FedEx Updates.
1Mochari, Ilan, “The Secret to Retail Success? No Stock or Inventory,” March 14, 2016. Inc.com.
2McGrath, Maggie, “Kate Spade Soars as Revenue Surges,” August 12, 2014. Forbes.com.
3Dholakiya, Pratik, “A Warning to Ecommerce Startups: The Future of Online is Offline,” November 26, 2013. The Daily Egg.
4“Shops to Showrooms,” March 12, 2016. The Economist.
5Steimle, Josh, “How Online Retailer Zalora Is Using an Offline Store to Grow in Hong Kong,” May 11, 2015. Forbes.com.