Inventory management is the key to your cash flow and your store’s success. You spend more money on inventory than anything else, and while it’s the most important asset you have, it’s also the place where you can bleed money if you don’t monitor that asset very carefully.
When buyers go to shows, many make the mistake of looking at products and thinking to themselves, “I could sell that.” You could, but that’s not the only question to ask yourself. The other question is, “How much can I sell without markdowns, and where do I want my inventory to be at the end of the season (or month, or quarter, or year)?”
The success of a brick-and-mortar retailer depends on store traffic. While that seems obvious, you also have to consider what drives customers to come back. Of course, great customer service and great product are big drivers of that, but the other driver is new, fresh, exciting inventory. According to surveys, customers return to stores to see what’s new, what’s just come in, and what they haven’t seen before. As such, turning over your inventory is critical.
To do that, you must continuously evaluate and review your inventory. Most retailers do not run enough inventory reports to do that properly, and some don’t run them at all! I’ve had retailers say, “I’m here every day, I know what’s going on.” No, you only think you do. You need to run enough reports to understand the nuances of the business.
Here’s an example. If you ran a best seller report today, you’d probably know who the #1 vendor is in your store. You might also know who #2 is. But who is #5? That’s where the opportunity is sleeping. Identifying that vendor might help you find other products you’re not buying that could drive more customer visits, more sales, and fewer markdowns.
Every buyer buys merchandise with the thought that it will sell. That said, there is no such thing as a perfect buyer, and sometimes you buy something you think will be great, only for it not to perform. We always say, “The customer votes with their wallet.” If they don’t vote for it by buying it, you need to identify that quickly, mark it down (or talk to the vendor about trading it out), and use that cash to purchase inventory that they will buy.
My first recommendation is to schedule time on your calendar, weekly or every two weeks, to review your inventory. Look at what has been there for more than 60 days, and what has been there for more than 90 days. That is where your cash is hiding. If inventory has been there that long, it means customers aren’t voting for it, and you need to take steps to turn it into cash. Maybe a markdown, but I’d start with some targeted promotion – have you posted it on social media? Have you done an email blast? Have you done any clienteling? I’d use those tools first, to get rid of the goods.
The reports you need will show you the current inventory levels, what you received over the past 60 days, and the age of those goods (usually by showing the last date received). This will help you identify the inventories that need your attention.
Second, rethink how you buy. Instead of just thinking about what you can sell, think about sell-through targets. For example, I’d like to achieve 50% sell-through in 30 days, so I can at least cover the cost of the merchandise. How close can you get to that?
Third, we are strong advocates of a Vendor Scorecard. This report should show you what you received and sold over a given time period, along with the inventory you have left. This will tell you quickly whether that vendor is profitable for you. Most POS systems can create this (or customize it for you), but there is no better way to negotiate with a vendor than showing them their results. By the way, the Vendor Scorecard can also show you opportunities for growth if you see a category that sells out very quickly. Look for those, too.
Peter Drucker is famous for saying, “All good ideas devolve into work.” He was right when he said it, and he is still right today. Great cash flow comes from avoiding stockpiling inventory, and avoiding stockpiling inventory comes from having a discipline in place to review your inventory, locate the slow sellers, and turn them into cash.
