What is Inventory Flipping
Inventory flipping is the act of selling a product or property before it depreciates rather than allowing it to remain shelved until its value is insignificant. Alternatively, inventory flipping can refer to the purchase of a product or property with the intention of turning it around quickly and selling it to make a profit. Flipping is a common practice in real estate, but it is also seen in other industries, such as the vehicle and furniture sales' markets.
BREAKING DOWN Inventory Flipping
Much like a perishable item whose value is null soon after expiration, inventory often reaches the same negative gain point. Unsold products equate to lost income. Rather than retaining depreciated stock until they have no value, a business may sell these products to reap some benefit. Consider a company that has sold a majority of its new inventory. If the unsold inventory is not flipped, it will be sold at lower prices resulting in a loss for the company.
Inventory depreciation affects some industries more than others. Technological advances rapidly change the landscape of product offerings. Products released six months to a year ago can be viewed as antiquated or rendered obsolete. Popular devices such as iPhones, laptops, tablets, and smart TVs have replaced flip phones, desktop computers, and tube televisions. Technology aids in the shift of consumer product demand. Quickly changing technological advances makes unsold older-model inventory worthless. It is a good business practice to mitigate losses by selling old inventory before it is valueless.
What Are the Risks of Flipping Inventory?
Often, inventory flipping is premature. For example, due to a miscalculation at the time of order, a company may order a large number of retail goods yet only sell a portion of them. Remaining inventory is destined for flipping at a cost that will forsake potential profits if sold at a discount. Also, flipping stock too early may create a shortage, leaving future customer orders unfulfilled.
Misunderstanding the market can cause an insufficient supply of inventory, an erosion of market share, and poor customer satisfaction ratings. To circumvent these inefficiencies, some companies adopt sophisticated inventory management systems.
Some consumers demand antiquated and obsolete items from merchandisers. This group of buyers is known as the vintage market. For example, while VHS tapes and vinyl records are no longer sold as new products in the open market, there is still a group of consumers seeking them and sometimes at premium prices.