A huge part of retail success is having the right product in the right place at the right time for the right price. There’s nothing more upsetting than being out of stock when a customer is ready to buy. My last post has you working on your inventory system so let’s take a deeper dive into Inventory Turn.
Inventory Turnover tells you how many times during a specific period you sell and replace (turnover) your inventory. It tells you if you are over or under stocked. Controlling your inventory turnover helps you keep your shelves stocked so you don’t miss sales. It keeps the cash flowing. In general a higher turn indicates merchandise is moving and business is good.
In general you will need to have 25-45% more items in inventory that you would need to meet your sales goal. For example, if you need to sell 10 hoof picks to meet your hoof pick sales goal this month, you will need to have 25-45% more hoof picks (roughly 13 - 15 total hoof picks) to meet this goal.
You can calculate your inventory turn by total company (all stores if you have multiple locations), individual store, category, brand and/or item. Depending on what you want to know you can select one of these calculations or a group.
Inventory Turnover = COGS (cost of goods sold)/Average Inventory
COGS = Beginning Inventory + Purchases – Ending Inventory (NOTE: Use wholesale costs plus any shipping and handling you have paid. Subtract any cost of lost, stolen on unsalable items.)
Average Inventory = Beginning Inventory + Ending Inventory/2
Days Inventory Held = Days in the Accounting Period/Inventory Turnover Ratio
Here’s an easy example for a store in a 30-day period using the following figures:
Beginning Inventory: $10,000
Ending Inventory: $20,000
Additional Purchases: $50,000
Days in period: 30
COGS: 10,000 + 50,000 – 20,000 = 40,000
Average Inventory: 10,000 + 20,000/2 = 15,000
Inventory Turnover Ratio: 40,000/15,000 = 2.67
Average Days held in Inventory: 30/2.67 = 11.24
With these numbers, you have an inventory turnover ratio of 2.67 and are holding your inventory for about 11 days.
Let’s see what happens when we increase our Additional Purchases to $70,000
COGS: 10,000 + 70,000 – 20,000 = 60,000
Average Inventory: 10,000 + 20,000/2 = 15,000
Inventory Turnover Ratio: 60,000/15,000 = 4
Average Days held in Inventory: 30/4 = 7.5
You can see the higher inventory rate decreases the average number of days that items are in store, ie. you are selling items faster.
Let’s also take a look at the simple hoof pick example from above using these numbers:
Beginning Inventory: $50 (10 picks @ $5/ea.)
Ending Inventory: $15 (3 picks @ $5/ea.)
Additional Purchases: $25 (5 picks @ $5/ea) NOTE - Assume you have purchased 45% more than you need which is 14.5, or rounded up 5 more picks to sell 10.
Days in period: 30
COGS: 50 + 25 – 15 = 60
Average Inventory: 50 + 15/2 = 32.50
Inventory Turnover Ratio: 60/32.50 = 1.8
Average Days held in Inventory: 30/1.8 = 16.66 or 17 days
Knowing how quickly you are selling individual key items will allow you to order enough stock and keep the deliveries on track to make sure you always have them in stock.
Need help with Inventory Turnover? Contact: Anne Cecil, ONO made in the 191, email@example.com
Inventory is likely the most expensive asset you have. Are you sure your current inventory is accurate? Summer is a great time to reclaim your inventory control system. Let’s get your investment in order before holiday sets in.
Out with the old
When was the last time you reviewed and updated your inventory? Start the process by removing all items you no longer sell from your inventory control system. Check for any stray units. Clear them out of the store and the system. You will be left with an accurate current product assortment and remove the possibility that new inventory will be received as an incorrect item.
Something’s just not right
Inventory issues often arise from human error - a product is not listed in inventory correctly, is placed in an incorrect category or marked as a different product when received, an incorrect item was sent, etc. Run a complete inventory report and look for items with “0”inventory, sales that stopped suddenly or negative inventory. Review each item, investigate and make changes accordingly.
What’s in a name?
Create a unique name for each item in your inventory that has even a minor difference from another. For example, don’t receive all fly spray at the same price point under fly spray. Receive each into the individual brand/type of fly spray. You will know EXACTLY what your customer prefers, so you can provide it. Now you have a clean current in-store inventory of items on hand.
What’s on order?
Next, review your orders to determine what is coming in and add these items to the system so they are accurately characterized when they arrive.
Switch from Annual to Perpetual on hand counts
Instead of one annual physical inventory count, consider doing smaller counts each week or month. Categories rotate throughout the year. The job is more manageable and reduces disruption of sales.
Your POS system is an integral part of your inventory control. Review what your system can and can’t do. Check to see if there is a new version or update. See what other options might be a better fit.
If your system doesn’t allow you to scan your inventory it’s time to make that happen. You’ll still need to set up the system as noted, but when set up properly scanning items as they are received, counted and sold saves significant time and money, removing most of the human error.
Need help with Inventory? Contact: Anne Cecil, ONO made in the 191, firstname.lastname@example.org
Did you know that a shopping journey that begins in store and ends online results in a 64% larger shop at check out?
Did you know an online shopping journey yields a 25% higher purchase at checkout than in-store?
Leverage this data as you integrate your in-store and online business into a Customer First shopping experience using these 4 simple steps.
1. Encourage your customer to complete their purchase online. You can do this with some computer stations in-store, by offering free wifi and by incentivizing them with bonus loyalty points, a percentage off, a coupon for their next visit, etc. That gets them to your site where you can show more product and keep them shopping with both hands free!
2. Incentivize add on to the purchase by offering Free Shipping with a minimum $ amount. Determine your average $ sale and average $ price of your “impulse” items to find the sweet spot free shipping minimum for your customer.
3. Make sure your site is set for suggestive cross sells, up sells and customers who bought this also bought… just like Amazon. Amazon is successful is because they make online shopping easy.
4. Consider a special deal for you page before checkout. Shoedazzle shows a page of items about 10-15% off to build share of wallet before the customer gets to checkout page. You could also promote online only merchandise or items you need to move. Customers do not have to select anything, but the opportunity is there.
Hire a website professional to set these options up for you and train your staff to maintain the process. It will be well worth the investment. Do it right and you will be well on your way to the integrated shopping experience your customer will love.
Need help with this strategy? Contact: Anne Cecil, ONO made in the 191, email@example.com