When Should I Start Stocking New Product Lines?

Introducing New Inventory Items

A vendor suggests (or insists) that you stock a new “revolutionary” product line.  Your salespeople claim they are losing customers because you aren’t stocking products they want to buy from you.  You see an advertisement and you exclaim to yourself, “We could sell a lot of that!”

Products are continually being introduced to the market.  You don’t have the money (or space) to stock all of them.  How do you know how to allocate the limited funds you have available to expand your inventory?  We suggest you ask yourself these questions:

How have products with similar characteristics sold in the past? Query your database to retrieve sales history for items with similar characteristics.  For example:

  • Brand name
  • Type of product
  • Product application (i.e., how users will use the product)
  • Color/Style/SizePrice point

If products with similar characteristics have sold well in the past, your stand a good chance that this new product line will also be successful.

What effect will the introduction of this new line have on sales of existing stocked products? Will this item cause a current product to become obsolete?  In this situation it is a good idea to liquidate your stock of the existing item before you start selling the new one.  After customers start using and accept the new product, the value of the older item usually plummets.

If you predict the new product will take away a significant percentage of the sales of an existing item ensure that your buyers purchase smaller quantities of the product currently stocked.  While stocking several brands of the same item provides your customers with choice, you have several products competing for the same sale.  Don’t you have enough competition outside of the walls of your business?  Do you really want to encourage competition within your warehouse if it isn’t absolutely necessary?

Does this new product line complement what you already sell or provide additional convenience to your customers? You have a greater chance of success by fulfilling more of your current customers’ needs or gaining new customers in your current market segments.  Invading new industries is like traveling on Star Trek’s Starship Enterprise.  You are going where no man or woman from your company has gone before.  In most cases you will experience a painful (and expensive) learning curve as you discover how to be successful in the new industry before you earn any profits.

What are the potential profits? Ideally any new product line should deliver a profit margin greater than your current average gross margin.  If not it should provide a value added service to current very profitable preferred customers.

What is the initial required investment? You probably have a limited amount of funds available to invest in new items.  Spend it wisely.  We normally don’t like to buy more than a two to three month supply of any new product line; even less if it is expensive or you can’t return any unsold stock six to nine months after the product line’s introduction.

Deciding to stock new products is a subjective decision.  If you only consider your “gut feelings” in making these decisions you’ll probably buy a lot of products that are “D.O.A.” or dead on arrival.  That means you won’t sell the entire initial quantity you bring into stock.  Be smart.  Ask the questions listed above before you sign on the dotted line!

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