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Current Page:    On-Demand, How-To Info » Inventory, Profits, Cash » Shape Up the Inventory

How to Shape Up Your Inventory

These days, independent retailers cannot afford any excess inventory.  Storage costs, insurance, pilferage, damage, obsolescence, taxes and interest on loans add up to 30 percent annually to the cost of the goods you carry. Because those costs continue to rise, tight inventory control is still one of the best investments you can make—especially during the buying season.

If your store is like many other independent retailers, it’s probably overstocked most of the time. This excess inventory is like excess fat: It looks bad, consumes energy the inventory “muscle” needs and threatens the financial health of your business.

If you’d like to time your inventory flow so you always have fresh merchandise and a healthy turnover rate, consider the following shape-up plan. It will help trim away excess inventory without cutting into the muscle of your stock.




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Excess Inventory?

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Wondering if you have too much money tied up in your inventory?

Here are some rule-of-thumb steps to help you determine whether your inventory levels are ideal.

  1. Determine the present turnover rate for your retail business.
  2. Divide 52 by the turnover rate you determined in Step 1 to get the number of weeks representing one turn. This is called your "selling period."
  3. Project sales to come for one selling period (calculated in Step 2). This sales figure represents the precise level of inventory you should have on hand to begin your next selling period.
  4. Achieve and maintain that level ("one turn's worth"). If you have excess inventory, take swift measures to eliminate it.
  5. Repeat Steps 1- 4 no less than monthly.


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Copyright 1999–2012 by The Retail Owners Institute® and Outcalt & Johnson: Retail Strategists, LLC