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Retail SMART |
Less
is More |
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By:
Dennis A. Conforto
Chairman & CEO of A-Z Media Group, Inc. |
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In my series of articles on the retail grind I listed ten ways to know you are no longer in the retail grind. Number five was that your inventory turn rate is 6 and above. Of all the numbers related to a retailer’s performance, nothing is more important than that of your inventory turn rate.
A turn rate is the rate at which you turn over your inventory. In the perfect world turn is selling out of your inventory. The turn rate is the number of ties you turn (or sell out) of your entire inventory. A retailer with a turn rate faster than the national average of 2.2 is a retailer who truly knows her customer. How you can you tell that from a simple number like turn rate? You can tell because those who turn their inventory rapidly simply have
the right merchandise in at the right time for the right
price. They don’t aspire to have the most selection they just have the best selection. They have learned that 80% of their sales volume comes from 20% of their inventory selection. Over time, they learn to avoid buying merchandise that just doesn’t sell.
To turn inventory quickly, you need to have a good inventory control and a POS system in place. But having the systems in place isn’t enough. You need to be able to translate the data in a meaningful way. You need to have an understanding of what is considered poor performance so you can identify and clear out the inventory of those items that are not selling well. That means that you understand that discounting losers is more important to the health of your retail business than hanging onto dead inventory in search of higher margins.
There is more to dropping dead inventory and keeping winning inventory in stock. It’s not only about systems but it’s also about timing. Most retailers wait too long to know if an item should be dropped from the line-up and closed out. Within 30 days, a retailer should know if it’s a winner or a loser. This is the signal of what to do next: Do you reorder? Do you drop it from the inventory and mark it down for quick movement? If losers are not addressed quickly, they begin to be a major percentage of the inventory, slowing down turn rates and decreasing cash flow.
Think about a retailer who has a poor turn rate: Everything works against her.
· She is always out of her best-selling merchandise because her money is tied up with losers.
· Her retail store has to be large enough to hold the dead inventory, so she pays more in rent.
· She has more shoplifting because there is more to shoplift from.
· She pays almost all of what her true profit would be in storing and displaying poor-selling merchandise.
· She is out of tune with the marketplace: she buys a little of everything from everyone, and as a result duplicates the look and feel of competing products on her floor, confusing the consumer, making it more difficult for them to buy.
When it comes to retail less is always more. The goal in retail, above all, is to be the low cost provider, meaning you have the lowest operating cost of any other retailer in your merchandise category. It is not about having the most selection it’s about having the best. If you want to improve your retail business, if you want to have true profits and great cash flow then turns is the key to your short and long-term success. Just know you don’t need the most to be the best, remember as in most things in life less is more.
Do you want to learn more about turn rates? The SMART Group can help you.
To learn more about the SMART Group, click here.
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