Your Guide to Retail Store Inventory (2024)

Inventory management is one of the pillars of a successful retail operation. Retail inventorymanagement techniques help stores and ecommerce sellers satisfy customers, reduce costs andincrease profits.

What Is Retail Inventory Management?

Retail inventory management is the process of ensuring you carry merchandise that shopperswant, with neither too little nor too much on hand. By managing inventory, retailers meetcustomer demand without running out of stock or carrying excess supply.

In practice, effective retail inventory management results in lower costs and a betterunderstanding of sales patterns. Retail inventory management tools and methods giveretailers more information with which to run their businesses, including:

• Product locations
• Quantities of each product type
• Which stock sells well and which doesn’t, by location and sales channel.
• Profit margin by style, model, product line or item
• Ideal amount of inventory to have in back stock and storage
• How many products to reorder and how often
• When to discontinue a product
• How changing seasons affect sales

What Is the Importance of Inventory Management in Retail?

Inventory management is vital for retailers because the practice helps them increase profits.They are more likely to have enough inventory to capture every possible sale while avoidingoverstock and minimizing expenses.

From a strategic point of view, retail inventory management increases efficiency. Thepractice:

• Decreases Inventory Costs:
  When you know how much stock you haveand how much you need, you can pinpoint inventory levels more accurately, therebyreducing storage and carrying costs for excess merchandise. Other savings includeshipping, logistics, depreciation and the opportunity cost that comes from nothaving an alternative product that might sell better.

• Minimizes Out-of-Stocks:
  To avoid disappointing customers andmissing sales, retailers want to avoid running out of inventory. Retailers can useinventory management tools to determine how much stock is “just right”to have onhand, neither too much nor too little. This amount will be larger for bestsellersthan for unpopular products. Also, with real-time information on sales and stock,retailers can react quickly by reordering, transferring stock from another locationor drop shipping to the customer.

• Improves Profit Margins:
  With lower inventory costs and enoughsupply to fill every order, retailers improve profitability.

• Prevents Spoilage and Obsolescence:
  Inventory management helpsretailers address another costly inefficiency that happens when products expire orbecome obsolete. This phenomenon can apply to perishables that have a limited shelflife, such as milk and meat, or a non-perishable that becomes obsolete becauseconsumer tastes and technology change. For example, season collections orholiday-specific packaging. Or when a piece of consumer technology adds a popularnew feature, the old models may face plummeting demand: Consider how the rise ofsmart televisions sunk demand for models that weren’t capable of streamingcontent.

• Improves Multi-Channel and Omnichannel Performance and OrderFulfillment:
  If you are selling via physical stores, your websiteand third-party merchants, it can be difficult to keep correct inventory countsacross all channels. Having accurate inventory data across selling channels lets youuse your inventory more efficiently, ultimately getting the product to consumersfaster.

• Simplifies Processes and Facilitates Growth:
  Strong inventorymanagement also reduces friction in your systems as sales grow. Shipping, receivingand order fulfillment run more smoothly, and you minimize errors, customercomplaints and staff stress.

• Reduces Shrinkage:
  Shrinkage is inventory loss due toshoplifting, product damage, vendor mistakes or fraud, employee theft andadministrative errors. According to a survey by the FMI food industry association, the averagesupermarket loses up to 3% of sales through shrinkage. A National Retail Federation survey(opens in new tab)puts averageshrinkage for its members at 1.4% of sales in 2019. This data suggests that mostlosses stem from incorrectly recording inventory on intake, miscounting it ormisplacing it. Stronger retail inventory management could reduce shrinkage by atleast half.

• Eases Supply Chain Management:
  Having a firm grip on inventoryand sales trends helps you manage your supply chain better. You can use thereplenishment system that works best for you, whether that’s just-in-timeordering or fewer, bigger orders. Retail inventory management helps youdetermine your economic order quantity (EOQ), which is the ideal order size tominimize inventory costs including holding, shortage and ordering expenses. The EOQformula, which factors in demand in units, ordering costs such as shipping chargesand holding costs, works best when these variables remain consistent over time.Learn more about the EOQ formula.

• Improves Customers Satisfaction:
  When customers get the productsthey want faster with fewer mistakes or out-of-stocks, it increases customerloyalty.

• Improves Forecasting:
  You can use data such as historical salesresults and available inventory to project future sales, growth and capital needs.These forecasts are vital to your budgeting and guide spending for marketing,product development and staffing.

How Does Retail Inventory Management Work?

Retail inventory management works by creating systems to log products, receive them intoinventory, track changes when sales occur, manage the flow of goods from purchasing to finalsale and check stock counts.

The information from these systems helps you achieve the benefits of retail inventorymanagement, such as lower costs and higher profit margins.

10 Basic Steps in Retail Inventory Management

The 10 basic steps in retail inventory management verify the goods you have, their quantity,location and other specifics such as expiration date. This stock data is useful formaximizing profits by understanding demand, costs and other variables.

You can integrate these procedures into a retail inventory management system, which can be assimple as a paper ledger or a spreadsheet but typically involves an electronic solution.

The following is a breakdown of the steps in retail inventory management.

1. Create a Centralized Record of All Products:
   List all theproducts you carry in one place with these details:

   • Product name
   • Stock-keeping unit (SKU)
   • Brand
   • Variables such as size, retail price, product category, lot number, location andexpiration date.
   • Vendor and vendor SKU
   • Wholesale cost
   • Minimum reorder amount
   • Economic order quantity (EOQ)
   • Case quantity amount
   • Inventory on hand
   • Reorder lead time

   Add product images and descriptions to help staff identify products. This step is keyif you sell by ecommerce. When you add new products, put them into your inventoryrecord. Whenever information such as a vendor or wholesale cost changes, update it.Establish policies for entering inventory, including who is responsible and when todo it. Having rich data helps unlock the power of a retail inventory managementsystem.

2. Identify Stock Location:
   If you are a small business with justone store, recording your inventory’s location is straightforward. Items areprobably either on display or in the stockroom. But retail chains with multiplesites and omnichannel sellers might have inventory in warehouses, distributioncenters, transit, stockrooms and on store shelves. Within those destinations aremore specific locations such as section, shelf and rack. Misplaced and overlookedproducts represent missed sales and lost revenue. Retail inventory managementpractices help prevent this. Use radio frequency identification (RFID) tags, barcodes and labels that contain category and department codes to fully or partiallyautomate the mapping of your inventory.

3. Do Regular and Accurate Stock Counts:
   You need to count yourinventory periodically to ensure it is accurate. Take into account shrinkage,damage, defects and returns to avoid errors. A retail inventory management systemmakes this process easier because you only need to double-check your data, ratherthan start from scratch. So, you can primarily focus on deviations. The frequency ofcounts depends to an extent on your business’s complexity, scale and the typeofinventory management system you use. Nonetheless, experts recommend countinginventory once a quarter or once a year at absolute minimum. Some businesses countindividual parts of their stock daily. Several counting techniques exist, includingphysical countingand cycle counting.

4. Combine Sales Data With Inventory Data to Simplify Reporting:
   Aretail inventory management system can integrate sales and inventory data. Thispicture shows you which goods are turning over fastest (a metric called salesvelocity) and which are lagging. Use the product data to decide when and how much toreorder and when to offer promotions or discounts.

5. Create a Purchasing Process:
   Schedule times to review data andplace orders, so you don’t get caught behind seasonal trends or risk stockoutages.With an electronic system, you can set stock levels for individual products thattrigger alerts for reorder. These levels should include a buffer that allows salesto continue at normal levels. If you’re using a manual system, review whichitemsare sold out or at reorder points, and add them to your purchase list. Prioritizepurchases based on an item’s profitability, popularity and lead time. Then,create apurchase order.

   See Also

   Zara SWOT Analysis 2020: Ultimate GuideZara Strategy TemplateWhat Is FIFO in Inventory? Definition and ExamplesThe Secret Of Zara’s Success - Customer Creation — SwiftERM

6. Establish a Process for Markdowns and Promotions:
   Product salescan fail to live up to expectations for several reasons, such as a cooling trend,obsolescence or seasonal factors. If you offer markdowns, be disciplined aboutdiscounting and moving slow sellers, which can generate cash and make room for moreprofitable products. Additionally, create a strategy ahead of time for promotions toensure that you have enough stock on hand to meet demand.

7. Create a Stock Receiving Procedure:
   During the receiving process,you’ll verify incoming orders and enter goods accurately into an inventorysystem.Without an established procedure, any supplier error or damage in transit can resultin problems like unexpected stock outages, overpayment to vendors and dead stock.Check each delivery against the purchase order to verify the contents match theorder. Count cartons and pallets, confirming product type and numbers and notingmistakes, damage or shortfalls. Follow up with vendors on any issues. Then, enterthe new products into inventory counts and store the goods. Depending on your needs,you might add price tags or bar codes to the stock. Perpetual inventory management,the simplest way of managing inventory, involves counting goods as soon as theyarrive. Read the article onperpetual inventory to learn more.

8. Create a Procedure for Returns:
   Without an inventory managementprocess for handling customer returns, you face an increased risk of holdingunsellable stock or missing an opportunity to put a sellable item back on display.When a customer makes a return, check to see if the item is damaged or defective,and route it for repair, write-off or return to the vendor as appropriate. If theproduct is sellable, add it to your inventory counts, and put it in its correctplace (in a physical store, ecommerce inventory, etc.).

9. Determine a Dead Stock Procedure:
   Excess inventory ties upcapital and weighs on profitability. Dead stock includes damaged items, incorrectdeliveries and leftover seasonal products. First, record items that fall into thiscategory and remove them from inventory. Designate a place to hold dead stock, andhandle it regularly (weekly, monthly or in a timeframe that’s right for yourbusiness). Ship merchandise that you can return to vendors for credit, calledpullbacks, promptly. Note any deadlines for the return shipment. Return damaged anddefective goods to suppliers, or document and notify suppliers, according to theirpolicy. Depending on your product line, you can deal with the remainder by sellingto outlets, donating, recycling or disposing of it.

10. Pick Your Inventory KPIs:
    To gauge the success of your process,pick and track some key performance indicators (KPIs). Profitability, inventoryvalue, sell-through rate and turnover rate are essential metrics for retailers.Learn how to calculate these, and see examples in the in-depth guide to KPIs forinventory management.

Inventory Management Methods for Retailers

Inventory management methods help retailers generate maximum profits by reducing costs,improving efficiency and understanding sales drivers. These methods optimize quantitiespurchased from suppliers, fine-tune fulfillment processes, strategically locate products,account for inventory and analyze demand and sales patterns.

The following are some of the key inventory management methods for retailers, organized bycategory. You can learn more about many of these in the “Essential Guide toInventory Control.”

Inventory Ordering Techniques for Retailers

These methods will help you determine demand. Inventory management software can automate thisplanning.

• Economic Order Quantity (EOQ):
  Use this formula to calculate theideal order amount. The equation takes into account demand, ordering costs andcarrying costs. Where D is demand in units, S represents ordering costs per ordersuch as shipping, and H represents holding costs such as storage expense, theformula is:

  EOQ = √ (2 × D × S / H)

• Open to Buy (OTB):
  This plan-ahead technique tells a retailer howmuch merchandise to buy in dollar terms for a fixed period. The goal is to ensurethere’s adequate supply and to generate positive cash flow. The formula is:

  Planned sales +projected end-of-period inventory on hand, in transit and on order - planned beginning of periodinventory = OTB at retail cost

• Safety Stock and Par Level:
  Safety stock is the amount ofinventory you order to serve as a buffer to prevent running out of stock. You carrythis additional quantity in case of incorrect sales forecasts or unexpected consumerdemand.

  Par level =safety stock + the minimuminventory required to meet customer demand

  If inventory falls below par level, it is time to reorder.

• Reorder Point:
  Using sales data and the lead time for newmerchandise to arrive from vendors, retailers can calculate the reorder point, orthe inventory threshold that should trigger reorder. The formula is:

  (Average dailyunit sales x average lead time indays) + safety stock in units =reorder point in units

• Just in Time (JIT):
  With this method, retailers receive newinventory exactly when they need it, rather than in advance. Japanese automakerspioneered this approach, which minimizes tying up capital in inventory and storagecosts. JIT is easiest to implement with high-cost, low-volume goods like cars andappliances. The savings on low-margin, high-volume products, when compared to therisk of stock-outs, may not be enough to merit the extra complexity.

Inventory Fulfillment Methods for Retailers:

These methods offer ways to reduce the cost of getting products to customers or holdinginventory. They also increase handling efficiency.

• Drop Shipping:
  With this method, the retailer does not hold theproducts it sells. When a customer makes a purchase, the retailer buys it from thevendor, who ships it to the customer. This decreases the retailer’s costs forhandling and storage as well as its investment in inventory.

• Consignment:
  In this arrangement, the wholesaler or supplierstill owns the merchandise, but the retailer stocks it ininventory. When the product sells to the end customer, the retailer pays thevendor, thereby reducing upfront expenses for the retailer.

• Cross Docking:
  The goods in incoming deliveries are directly putonto outbound trucks without ever entering storage. The outbound goods may be goingto customers or retail outlets and distribution centers. This technique reduceshandling and warehouse space.

• Pick and Pack Process:
  The way a retailer fills ecommerce ordersfrom the warehouse will influence efficiency, volume, error rate and other factorsthat impact customer satisfaction and profitability. Methods include individualorder picking (each order filled one at a time), batch picking (gathering multiplesof the same item at one time for different orders), wave picking (filling groups ofsimilar orders at the same time) and zone picking (workers pick only products intheir assigned zone of the warehouse).

  See Also

  Zara Marketing Mix (4Ps) Analysis

• 3PL:
  Some retailers benefit from outsourcing inventory handlingand order fulfillment to third-party logistics services. They can save the retailermoney and scale more easily.

Inventory Accounting Techniques for Retailers

Use one of these methods to determine the cost of your inventory and goods sold foraccounting purposes. Both techniques impact profits, taxes and the usefulness of financialreports. They are strictly for the accounting of physical inventory. They do notrequire youto identify and track the age of each item sold.

• First In, First Out (FIFO):
  This method assumes you sell theoldest products in your inventory first. This option is the easiest to understandand use. This technique tracks the natural lifecycle of goods: Retailers usuallyprefer to sell older products first, before they spoil, become obsolete or losevalue in another way. FIFO, the most popular choice for retailers, is thought to bea more accurate reflection of real business conditions than LIFO.

• Last In, First Out (LIFO):
  This technique assumes you sell newerinventory first. These goods often have a higher cost than older stock, whichreduces stated profits and taxes. LIFO carries a risk of allowing inventory toremain on the books indefinitely and become undervalued or overvalued relative tomarket costs. LIFO accounting is more susceptible to manipulation, so it is lesstrusted.

To learn more about inventory costs, read “The Key to Using Inventory CostAccounting Methods in Your Business.”

Inventory Analysis and Forecasting Methods for Retailers

Retailers use techniques in this category to understand their performance. For example, theyidentify products that sell best so they can prioritize them. Stores also use these todetermine their return on inventory investment and estimate the value of their stock.

• ABC:
  ABC analysis divides inventory into three groups:

  • A is for your most valuable products, typically the 20% of inventory thataccounts for 80% of sales or profits.
  • B represents the greater number of mid-range products that do not fit in eitherA or C.
  • C is for the largest number of products that sell the least or contribute leastto profitability.
    Retailers use this information to improve how theymanage—how much they hold and their purchasing strategy—inventory ineach group.ABC analysis data can also guide marketing efforts and other strategicactivities.

• FSN:
  This method, which stands for fast, slow and non-movinganalysis, is similar to ABC in that it categorizes inventory into three groups.Here, the division focuses on sales velocity (the speed at which you generaterevenue). Fast-moving items might be able to support price increases. Similarly, astore owner might consider discontinuing non-moving items. An online retailer couldalso organize a warehouse, so F products are the easiest and fastest to pick becausethey are closest to packing stations and on the most accessible shelves.

• XYZ:
  This technique also sorts products according to variabilityin demand and difficulty in forecasting sales. X products have steady demand, Yitems have strong variability, and Z goods have erratic and hard-to-predict demand.Retailers can even combine the ABC and XYZ systems to segment their inventory formore precise ordering and stocking practices. For example, your reordering policiesfor an AX product, which is a strong contributor to your bottom line and has steadydemand, would likely be quite different than for a CZ product, which contributesleast to your business and faces unpredictable demand.

• Batch Tracking:
  The objective of this segmentation technique isquality control. This method groups goods into sets of products that weremanufactured or processed together using the same raw materials. Retailers monitorinformation about products, such as expiration dates, place and date ofmanufacturing, origin, recall status, defect rates and purchaser, by batch or lot.For example, a grocery store chain wants to keep an eye on all the milk expirationdates in its inventory. A paint retailer would make sure that all the cans in acustomer’s purchase came from the same lot to avoid shade variation.Meanwhile, somegoods such as medication need an audit trail.

• Gross Margin Return on Investment (GMROI):
  This formula showsretailers how much gross profit they earn for each dollar invested in inventory.Many stores look at this value by department. The formula is:

  Gross margin return oninvestment = gross margin / average inventory cost

• Inventory Turnover Rate:
  This calculation tells a retailer howmany times it sells its entire stock of inventory in a year, which is an indicatorof financial health and liquidity. There are a few ways to figure this out. One isthe cost of goods sold/average inventory value. Calculate average inventory byadding the beginning and ending inventory values and dividing by two. The secondformula is the sales value/inventory value. Across all types of retail, inventoryturnover rates average around eight. If your rate is higher or lower than your peersor makes a significant move, you may want to try inventory turnover rateoptimization techniques. These include steps such as being more aggressive aboutputting items on sale and ordering more or less of a product. Knowing your turnoverrate also helps you plan orders for long lead-time goods.

• RetailInventory Method:
  This technique is a fast way to estimatethe ending inventory value. Since the result is an estimate, the number is notusable for financial statements, and you should confirm it against inventory counts.Follow these steps:

  • First, get the cost-to-retail percentage (inventory cost/retail price).
  • Determine the cost of goods available for sale (cost of beginning inventory/costof purchases).
  • Figure out the cost of sales for the period (sales x cost-to-retail percentage).
  • Calculate the ending inventory (cost of goods available for sale – cost ofsalesduring the period).

• Retail Demand Forecasting:
  Use these techniques to predict howmuch your customers will want to buy. This one is tricky; there are many qualitativeand quantitative methods. Among the common quantitative methods are moving averageand time-series analysis—which take historical sales and seasonality intoaccount.Predictiveanalytics software can perform this kind of forecasting by incorporatingmultiple methods. Having a good idea of demand can boost profitability by helpingyou determine staffing, purchasing needs and the optimal inventory to hold.

Inventory Audit Methods for Retailers

These techniques double-check inventory counts, helping retailers avoid stock outages anddead stock. Inventory errors, mistakes and miscounts are prevalent even when using RFID andbarcode tagging. Inaccuracies cause inefficiencies, lost sales and budgeting and forecastingdifficulties. A 2019 study for the ECR retailer-manufacturing working group found that about60% of retailers’ inventory records wereinaccurate(opens in new tab).

Inventory audit methods include:

• Physical Inventory Audit:
  This process matches financial recordswith counts of physical goods. In a formal audit, an accountant observes thephysical count. Oftentimes, companies will pause operations so no items are movingduring the audit. For large companies, physical inventories require a lot ofresources, time and planning. On the positive side, a physical inventory is anexcellent way to control for inventory shrinkage.

• Spot Checking:
  This option involves doing a periodic check of aparticular department or store location. Spot checking is a good method to identifyissues in inventory procedures before they become larger problems. Managers shouldregularly perform inventory spot checks— especially after implementing a newplan orbig change to the inventory management plan.

• Cycle Counting:
  This technique calls for a retailer to count partof its stock daily. You don’t need to stop operations for this type of count,although retailers typically still do a full physical inventory periodically. Cyclecounting is excellent for companies with a lot of inventory who cannot disruptoperations to perform full physical inventory checks. This method may be difficultfor companies that are not able or willing to use inventory management software. Tocycle count, companies need to keep an accurate record.

Best Practices and Expert Tips for Retail Inventory Management

Retailers that follow inventory management best practices lay the foundation for greaterstock accuracy, lower costs, less shrinkage and higher profit margins. Strive to meetindustry standards and follow the advice of inventory experts.

• Flex Your Ordering Muscles:
  Do everything you can to ensure youorder the ideal amount of stock at the right time to satisfy demand and delightcustomers. This means setting data-backed levels for your safety and par stock,knowing reorder thresholds, optimizing order sizes with economic order quantity(EOQ) and using the open-to-buy technique to plan purchases.

• Be Proactive with Your Supply Chain:
  Share sales and productforecasts with vendors, and ask for precise lead times. Track suppliers’servicelevels, such as the percentage of complete orders and fulfillment times. Communicatewith vendors that need to improve, and explain the concrete actions required to meetyour needs. Do contingency planning to identify alternative suppliers of your mostimportant items in case yourprimary supplier cannot deliver.

• Crunch Your Numbers:
  Keep close tabs on your KPIs. Track whichproducts are your best and worst performers using ABC, FSN or XYZ analysis.Understand indicators of customer demand and seasonal fluctuations, and know yourturnover rate and GMROI. Actively try to improve the quality of your customer demandand sales forecasts.

• Maximize Efficiency:
  Never stop trying to make every part of yourinventory management more efficient. Arrange your warehouse strategically, and keepit organized. Here are other ways to improve efficiency.

  • Use the picking process that best matches your order volume and product types.
  • Store items as close as possible to regions and communities where they are inthe highest demand.
  • Analyze whether using drop shipping or a third-party logistics provider wouldmake your retail inventory management more efficient.
  • Combat shrinkage with loss prevention programs, and monitor incoming goods.
  • Use SKU management to analyze carrying costs.
  • Make sure you are offering the right number of products and identifying yourhighest-velocity items.
  • Document all your processes, such as receiving, to ensure standardization.

• Prioritize Accuracy:
  Perform regular inventory audits and counts.Train staff in inventory management, and set goals for performance. Build a culturethat prizes the pursuit of accuracy.

• Use an Inventory Management System:
  By leveraging technology, youcan automate many tasks and instantly make progress on goals such as accuracy andefficiency. By choosing the right tool, you can integrate your point-of-sale (POS)system with inventory management, eliminating the need for manual data entry, whichwill reduce errors and generate richer data. An automated system can also sendnotifications for stock alerts and simplify your efforts to coordinate inventory inmultiple locations.

Why You Should Invest in a Retail Inventory Management Solution

A retail business will quickly outgrow using pen and paper or spreadsheets to track stock.Retail inventory management solutions automate your administration and documentation, raiseaccuracy, improve the customer experience, reduce costs and reveal valuable trends.

The benefits include:

• Accurate receiving and shipping records
• Real-time, reliable inventory counts
• Merchandise traceability using bar codes or RFID
• Simplified returns
• Better forecasting
• Performance measurement with KPIs
• Insights into sales trends
• Easier implementation of promotions and discounts
• Support for dynamic and strategic pricing
• Custom notifications
• Easy report generation

If you operate an ecommerce, multichannel or omnichannel business, managing inventory isvirtually impossible without an automated solution. See this article about the key features of inventorymanagement systems to learn more about how this technology can transform your retailoperations.

How POS Systems Can Help with Retail Inventory Management

Integrating a point-of-sale system with your inventory management process puts moreinformation at your fingertips. You can use the data to improve many aspects of your retailbusiness, such as purchasing, overhead costs and merchandise sell-through.

Here are some example benefits:

• Less Guesswork:
  With real-time and historical sales informationto make your sales forecasts more accurate. This data gives you a strong basis forreorder decisions. You can also see which products and SKUs are selling well, so youcan prevent stock-outs. Data on slow-moving products can trigger discounts andpromotions, so you don’t end the season with dead stock. Additionally,real-timedata helps keep inventory counts accurate.

• Lower Overhead:
  With more accurate ordering, you can rationalizestorage and reduce warehouse costs along with related expenses such as labor, taxes,insurance, dead stock and opportunity cost.

• Happier Customers, More Sales:
  You can delight a store customerwhose size or preferred color is out of stock at one location by using the POSsystem to check whether the item is available at another store or warehouse. Thecustomer can pay for the item, and you can ship it to their home, saving apotentially lost sale. According to one survey on millennial purchasing habits, 39%of in-store shoppers leave without purchasing because of out-of-stock items.

Retail Inventory Management FAQs

Some retail inventory management topics crop up frequently:

What Are Retail Inventory Costs?

This retail inventorymethod, also known as cost-to-retail, estimates the ending inventoryvalue by using the ratio of inventory cost to the retail price. This accounting techniqueshows how much the cost of the good represents of the merchandise’s retail price.

So, if you are selling dresses for $100 and your wholesale cost is $25, your cost to retailratio is 25%.

From another perspective, retail inventory costs consist of more than the wholesale price ofthe merchandise. You have to factor in costs such as storage, insurance, transportation,shrinkage, handling and more.

How Are Inventory Levels Monitored in Retail Stores?

Keeping track of inventory in stores can be challenging, so most retailers use multipletechniques to monitor inventory levels. First, they integrate a POS system with an inventorymanagement system, so the stock reflects every sale or return.

Retailers also put RFID tags and bar codes on merchandise to gather information on stockquickly, keep track of inventory location and update inventory records. They also make sureto record shrinkage. Store staff or managers update the POS system when products are damagedand stolen, which adjusts inventory counts. Implementing loss prevention measures,such as visible security guards, helps keep inventory counts accurate by deterring theft.

In addition, stores conduct physical inventory counts periodically and check these findingsagainst inventory records. Any mismatch requires an adjustment. Finally, training staff onprocedures such as exchanges and returns and stressing the importance of putting them intothe system helps retailers maintain oversight of inventory levels.

What Is a Good Inventory Turnover Rate for Retail?

Inventory turnover rate measures how many times inventory sells in a year. Generally, ahigher number is better. The average U.S. retail inventory turnover rate was about eight in2019, according to CSIMarket, so a number above that qualifies as good.

For example, in 2019, Walmart’s inventory turnover ratio was 8.48 turns. This meansthatWalmart sold and restocked their inventory about 8.48 times in 2019, or every one to twomonths, to meet customer demand. This rate is most useful for comparing companies.

But turnover varies widely by store type, so retailers should compare their rate to theirpeers’.

For example, the Retail Owners Institute found RV dealers had an average inventory turnoverof 2.4 in 2019, while bakeries averaged 52. Typically, CPG products will have higherturnover, while higher ticket items generally have a lower turnover rate. You can learn moreabout turnover by reading “Inventory Turnover Primer:Calculations, Rates and Analyses.”

Remember that the turnover rate does not tell the whole story. A store that has a much higherturnover rate than its counterparts may not be purchasing enough. The retailer may not beoptimizing order size, incurring higher shipping costs or missing quantity discounts.

Moreover, turnover does not show how many sales a store missed because an item was out ofstock. So, a seemingly positive turnover rate could mask underlying problems. Similarly, astore with a lower turnover number may be over-ordering or have too many slow-sellingproducts and spending too much on inventory storage.

Low-margin, high-volume stores depend on rapid turnover to make a profit. Grocery stores hadturnover rates around 17 in 2019, according to CSIMarket. Yet retailers that sell expensiveproducts, especially those that take a long time to manufacture, can thrive on low turnoverrates.

What Is Retail Inventory Control?

Retail inventory control is the process of managing retail goods from order to final sale.The goal is to ensure a retailer has the ideal amount of product available when customerswant it while keeping costs at a minimum.

The retail inventory management methods described earlier, along with technology and othersystems, work together to achieve retail inventory control. Learn more in the “Essential Guide toInventory Control.”

Transform Your Retail Inventory Management With NetSuite

The right technology is crucial to achieving maximum efficiency in retail inventorymanagement. You need to be able to see all products, across all channels, in a single viewand apply intelligent order management to your purchasing to provide customers with anexceptional shopping experience. The right solution scales with your business and supportsunlimited expansion.

NetSuite offers a suite of native tools for tracking inventory in multiple locations,determining reorder points and managing safety stock and cycle counts. Find the rightbalance between demand and supply across your entire organization with the demand planningand distribution requirements planning features. Learn more about how you can use NetSuite to help plan and manage retailinventory automatically, reduce handling costs and increase cash flow.