BY TONY GONZALEZ
Parts and Accessories has been one of the major topics of conversation in Garage Composites 20-Clubs, at our Workshops, and when we go to consult in-dealerships. More recently we hear many dealers tell us that they simply cannot keep up with the internet, that customers simply do not want to shop at a retail location any longer, and that most customers simply want a discount. While these topics have validity, I would like to focus on how motorcycle dealerships compound these issues with their own lack of processes for controlling their inventory.
Obsolescence (OBS) is defined as becoming obsolete or un-useful. At Garage Composites, we consider anything that is 365 days or older as obsolete. Our most current composite numbers show that, as a National Average, motorcycle dealers are carrying $68,691 in obsolete Parts, Garments, and Accessories. This trend remains consistent throughout the year and will often grow towards December. Cash is king in a business and many dealerships run with a razor thin amount of liquidity. My intent with this article is to minimize your obsolescence by becoming aware of it, ordering it correctly, and having a clear path to reducing the price of your inventory long before it becomes 365 days old.
How do you ensure that your managers track obsolescence? Many dealers do not even run a weekly report to understand what in their inventory is obsolete. The first step in controlling your OBS is understanding how much you have in your building. This concept is known as inventory accuracy. Understanding where your “stuff” is and how much you have at all times is key. As an owner, you must ensure that an OBS report is run weekly and that you not only discuss the report with your Parts Manager, but that you employ strategies to control OBS early and often. Furthermore, you must have full inventory counts at least once a year. Once you shed light on the problem and create a cohesive plan to rid yourself of a majority of your OBS, you set a tone that is replicable throughout the year.
Don’t justify purchasing by using the “economies of scale” system. Dealers chase discounts for purchasing volume or spif programs by vendors that, in the long run, end up not penciling towards profitability. Buying a hundred helmets when historical data proves they will only sell 50 simply does not make sense, especially when you consider how much is will lose you money by sitting on a shelf, being moved around the dealership, inventoried and stored, etc. Motorcycle dealers continue to literally throw away hundreds of thousands of dollars over the years by buying too much or too much of the wrong thing.
Ordering is tough for many reasons. Who in your dealership does the ordering for PG&A? First and foremost — ask yourself if you have the right person pulling the trigger on decisions that involve tens-to-hundreds of thousands of dollars. The age, gender, experience, and gut of the person buying are all things that can be successful as well as costly when purchasing. Can you follow the trends? Do you understand your customer wants? Are you purchasing items that you think your customers would love or because you love them because you are an avid “insert activity here.” You may be the wrong person to buy in your store and remember that the best method to employ when purchasing is one that does not try to be everything to everyone. Be specific, be distilled, understand the needs of your customers and be more profitable.
Replenish based on market demand, known trends and without a blank check! If you allow your Parts Manager to simply click a button and order — you lack a process. Ensure that the person ordering your inventory is using some form of Open to Buy or Sell Through process so as not to bury you with tens of thousands of dollars of burden. A blank checkbook is not good for anyone to use. Restock when inventory moves, hold tight when numbers tell you that inventory is not moving. Focus on four to five turns per year that are ahead of retail trends. Do not be tempted to order more summer stock just because something starts moving quickly at the end of season — these are mistakes that cause OBS.
Finally, know early when something is not moving. Sales, discounts, reduced prices, blow outs – these are all strategies employed in retail to make inventory go away. Unfortunately, these strategies are typically employed after something has become obsolete. If stock is not selling in earnest within 30 days, consider moving it to a different location in your store. If inventory is stalled at 90 days — employ your first discount strategy (typically 10% - 20%). Once inventory hits 180 days with slow sales, consider deeper discounts or some savvy reward for purchase. The point is, try to reap some profit from slow movers before the end of their life expectancy…once your inventory has a birthday, unfortunately the profit is already gone.
Tony Gonzalez is CEO of Garage Composites. He began his career in the motorcycle industry when he was hired by Ed Lemco in 2004. A true student of the industry, he quickly became a sales trainer and a moderator. Gonzalez has a keen model to motivate his clients and is considered one of the best 20-Club moderators in the industry. Tony believes that his greatest accomplishment was recreating the environment that put the motorcycle dealer first again. He is passionate about being a dealers advocate and firmly believes that his dealers are his family, not his clients.