Your cash flow and profitability depend on inventory productivity (i.e., does it sell or not and how fast). If you can improve this value, you can improve the profitability of your store. So, what can you do to improve your inventory productivity?
Analyze product performance
As a general rule, you can improve your cash flow by 1% for every 1 week of improvement you achieve in inventory turns. Turns are the rate at which inventory is sold within a certain time frame. This is an important indicator of how efficiently a product is moving through a sales cycle. You can use turns to discover what products sell most quickly and make you the most money (note: products selling at a faster rate usually sell at full price and higher margins). On the flip side, slow inventory turnover is an indicator of lost opportunity.
Here’s how to improve your inventory turn rate:
Analyze your turn data at the class, brand, and product levels to identify inventory performance
Mark down stale products to sell them quickly and make room for better-performing products
Invest your cash into high productivity classes, brands, and products
Making these decisions will improve your inventory productivity to increase cash flow. What would it look like if your business could increase overall inventory turn by shaving off just one week off inventory age? Find your potential cash flow increase:
Total number of sales X .01 (1% improvement from 1-week turn increase) = cash flow increase
That’s a powerful number! RICS system provides turns, return on investment, and gross margin rate of investment on our sales reports so you don’t have to mess with calculating it yourself.
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