Obsolete Inventory  Obsolete inventory is merchandise that does not have any true or anticipated demand. Carrying the cost of dead items causes a drag on all of your financial ratios. Every store needs to create a plan to recapture cash from dead inventory, to reinvest in inventory that turns. In recent years, the lifecycle of products has diminished. Today’s hot item is tomorrow’s dead item.  Liquidating non-performing assets can be time-intensive and emotional. Many retailers do not have a dedicated system in place for this, and may view it as a low priority. Some of the reasons for identifying and liquidating obsolete inventory: o Having a documented process for assessing the value and merchantability of slow-moving inventory assures that these items are kept to a minimum. o Liquidating obsolete, non-performing inventory for the best price you can get is crucial. Every dollar obtained for a non-performing asset is a dollar of working capital preserved. o By liquidating obsolete inventory, your store looks fully stocked with clean, in-demand items. Customer visits are enhanced when they can count on finding interesting, updated product assortments. o Merchandise sitting on a shelf costs money. It is not unusual for a retailer whose inventory has not been reviewed over a period of time to find that 20 – 25% of the store’s total items are non-performers. Even a store that vigorously culls its inventory could have 5 – 10% of total inventory in non-performing merchandise. There are a number of reasons for this, many of which are almost unavoidable.  There are three components of the costs of carrying dead inventory and its impact on your bottom line: o Lost Gross Profit Dollars Using a very aggressive approach and disposing of your dead inventory, even at any price, will generate useful cash and clear up space. o Real Estate Costs The high occupancy costs of retailing require that every available inch of merchandising space produce a return on investment. For example, if a store with 10,000 square feet of sales space has 23% of that space occupied by non-performing merchandise, and a base rent of $12 per square foot, that store spends $27,600 per year on space for merchandise that is collecting dust. If a store with 10,000 square feet of sales space has just 5% of that space occupied by non-performing merchandise, at $12 per square foot this is still $6,000 per year with no return. o Other Carrying Costs Inventory is a nonproductive asset – it earns no interest but costs you space, shrinkage, insurance and handling.