The retail industry is extremely competitive and one of the biggest challenges for any retailer is inventory management. Too much inventory causes cash flow issues and leads to other unnecessary costs whereas too little inventory increases the risk of losing potential customers who will shop elsewhere.
Retail inventory management is a combination of the methods and processes used to keep track of the stock in a retail business environment. These methods control everything from the ordering, shipping, receiving, and tracking of inventory to retail turnover and storage.
A good retail inventory management system can help maintain a business’ profits at a steady margin as well as reducing theft and loss of inventory. Many retail businesses lose money every year because they do not have a successful inventory management system in place.
Many businesses use some type of computer software to manage their inventory. Regardless of the type of system used to manage inventory, a retail business owner should keep the following concepts in mind:
- Regularly reading sales reports allows you to identify fast-moving and slow-selling items. It’s important to know how long products have been sitting on the sales floor and to take action accordingly. Products that are not moving may need to either be removed or have prices discounted.
- Make sure that products are removed from the inventory system as soon as they are sold and that new stock is recorded into the system as quickly as possible. Any successful store owner will tell you that it is essential to know exactly what is in stock and where to locate it.
- Keep as much inventory as possible on the sales floor so that it is visible to your customers. The more they have to choose from, the more likely they are to buy because they have plenty of available choices. Full shelves that are kept neat and organized create an appealing impression to customers.
- Rotate stock if your inventory is perishable or at risk of becoming outdated. Place new, fresh product behind or underneath older products so customers will reach for the older items first. The same concept applies to your stock room so that the oldest inventory gets put onto the sales floor first.
The accuracy of computerized stock level records need to be checked regularly and adjusted accordingly by physically counting the stock on the floor and comparing it against the computerized inventory levels. Most retail outlets count inventory at regularly spaced intervals such as monthly, semiannually or yearly. Frequent inventory counts are an important tool in identifying theft and loss of retail inventory, which can be huge problems for some business owners.
If you have any questions about how to best implement a retail inventory management system for your business please contact a professional at White Kennedy LLP.
Written by Chris Browne, Partner, White Kennedy LLP