6 Tips to Drive Inventory Turnover
Driving inventory turnover is one of the hallmarks of the very best independent retailers. In almost every case, an independent retailer that turns their inventory quickly will outperform a competitor that turns their inventory more slowly.
Why is this? An inventory that’s turning quickly typically is lean and focused, with exceptional assortments, a continuous flow of new merchandise, and compelling presentations. All of that leads to customers who visit often, buy with an acute sense of urgency, and pay full retails.
So what can you do to drive your inventory turnover? Here are 6 ideas that you can apply to your business:
- Buy more frequently. When you buy less frequently – by front-loading your deliveries into the beginning of a season, for example – you extend out the time between when the merchandise arrives and when you expect to sell it. That gap results in slower turning inventory, The merchandise, and the store it’s in, tends to get stale as a result. If you are like most independent retailers, you are in the fashion business of one kind or another. You’re not selling commodities. If your best customers are in every four weeks or so, and you have merchandise an average of three months before you sell it, that’s at least two times those customers will see it before they purchase it, if they purchase it at all. Each time they come in and don’t buy it, the perceived value in their minds goes down. Which is why they won’t buy it until it’s on a markdown rack.
- Buy in smaller quantities. When you buy larger quantities of an item, customers instinctively sense that they don’t have to make an immediate decision when they see something they like. They can go shopping somewhere else for a couple of hours and always come back. It’ll be there. Or they can always come back next week or next month. It’ll be there. When they see less depth, they instinctively understand that they need to act quickly. This is especially true for any kind of fashion merchandise. Further, when you buy smaller quantities of an item, you’re left with dollars to bring in something new right behind it. That way, every time a customer visits, there are new things for them to consider. That newness encourages them to return more frequently to see what else might be new.
- Buy the best. In just about every product category, there are seemingly endless choices for you, the merchant, to select from. Your choices, reflective of your passion, purpose, eye and taste level, differentiates you from your competition and, as your customers grow to trust your judgment, is a decisive factor in why they are willing to spend their money in your store. In the world of good, better, and best, buy the best and leave the rest to somebody else. In a marketplace of me-too merchandise, seek out the exceptional.
- Let presentations breathe. It’s hard to stand out in a crowd. When presentations are crowded, one thing tends to run into another. Nothing is able to stand out, customers have to work too hard to sort it all out in their minds, their eyes glaze and even the gems in the assortment stagnate. When everything is given its proper place on the stage, the stars can shine and all of the supporting actors can do their job. When that happens, customers can easily differentiate each item, find what they are looking for and discover that unexpected treasure. When presentations breathe, sales increase and the inventory turns much faster.
- Cull out the sludge. Sludge is the merchandise that just sits there, on the bottom, doing nothing. It is usually (though not always) the result of previous buying mistakes. In some cases the sludge can be pretty toxic, poisoning and de-valuing any other merchandise in its vicinity. It saps your assortments of energy and appeal, and leaves a stale air. Take your medicine and move on True sludge, the worst of the worst, probably has limited market value, and your best option may be to donate that inventory and take the write-off. Other inventory may be able to be swapped out with vendors, sold to jobbers, etc. If there is inventory whose best recovery value can be obtained through clearance sales, then my guidance is to isolate it in the store in a limited space, flow it through that area in manageable lots, and move it at extremely deep discounts to turn it into cash ASAP. It will only lose value at an accelerating rate with each passing day, so move it out, now!
- Avoid promotional discounting. Promotional discounting is a retailer’s addiction. It brings pleasure in the short term but misery in the long run. It cheapens the perceived value of everything in your store, whether on sale or not. It turns your value proposition on its head and your customers into price shoppers. It encourages them to wait for the next sale, rather than buy today. In slowing your turn, it ages your inventory, leaving ever-larger swathes of inventory to clear at clearance time. And, because it takes ever-greater discounts to get the same response from customers, it takes ever-greater discounts for the retailer to get the same high. And I haven’t even got to the cash flow implications of ever-narrowing margins...
Follow these tips and you’ll see your sales increase while your inventory investment shrinks. That’s what makes turning your inventory such a winner!