At the end of the day, retailers just want to make more money. And it all starts with inventory.
Buyers are responsible for taking the owner’s money to buy product. But buyer turnover can be high, and they’re not necessarily interested in the analytics. Or your bottom line.
By executing a successful inventory management strategy, you’ll be able to make better buying decisions, which will increase inventory productivity and cash flow.
Our recent webinar, Make More Money: How To Turn Your Buyer Into An Investor, focused on the following 4-step process to establish a best practice buying strategy:
- Set Goals
- Analyze Data for Market Trends, Product Performance & Forecasting
- Buddy Up with Your Vendors
- Repeat & Maintain
So how can you make more money by using your buyer as an investor?
Check out the #MakeMoreMoney webinar below:
Understanding the Numbers
Setting Inventory Investment Goals
The following retail industry averages will help you set realistic goals for your buying strategy. Use these KPIs as a benchmark for your own store’s performance.
- Gross Profit % or Margin = Revenue – Cost of Goods Sold
- ROI = Profitability / Inventory Cost
- Turn = Measure of how efficiently inventory is sold; for example, if you have an inventory turnover of 4, it means that you’ve completely sold out your stock 4x over the year.
You can improve your cash flow by 1% for every 1 week of improvement you achieve in inventory turns.
Increase your profit margins by properly stocking your store with the right products, at the right time.
Your data is mineable gold. Use it!
Evaluate supplier performance first, then product performance.
Use seasonal data for effective demand planning. Forecast for your most profitable inventory.
Evaluating Supplier Performance
Analyzing sales performance by supplier is a good way to see how a brand is doing in your store overall.
In the example below…
At first glance, it looks like Brooks is the top performing vendor in the store. That is true based on Units and Net Sales. But let’s look at NB. NB is actually getting a better margin than Brooks, as well as a better turn rate and ROI value. This means that you’re making more money per every pair of NB shoes you sell versus Brooks. In this case, you make an extra dollar per pair versus selling Brooks.
GMROI factors in both profit and inventory. There are two things driving the GMROI number:
- The NB inventory value is lower
- The profit number is lower.
The markdown % is significantly less than that of Brooks, resulting in the higher profit margin.
Evaluating Product Performance
Analyze product performance regularly. Identify strong and weak performing products.
Stop buying product. Start investing in inventory!