In the last blog I discussed how inventory is your number one asset in your boutique, brand or wholesale business but can quickly turn into to a liability if not managed well.
If you haven’t read it, click here.
Ok, we are going in deep. 😊 Stay with me my friend because there is a lot of math in this blog, but you need to know this. Like know this ASAP!!
Let’s Chat About Inventory Turn…
Inventory turn is how many times the average inventory has been sold during a specific time. It measures how frequently product is moving in and out of your store. Usually reviewed on an annual basis.
Inventory turn measures the efficiency/freshness of your assortment. It’s tells you the health of your inventory. The bottom line: it’s how quickly your product is turning into CASH.💲
So, inventory is like avocados. When you buy avocados, you think about what you’re going to use them for, how many you need and when are you going to use them. So, you buy varying ripeness. If you buy too many inevitably one is going to be too mushy and you just wasted your money/cash!
Stop thinking about guacamole, come back to me.
Turn = Net sales/average inventory
For a fashion business turn should be around 4 or 5. But not all categories need to be at the same turn, faster fashion should turn well faster and basics can turn a little slower.
Why am I going on and on about inventory turn, when you just want to know “How much product do I need for my store?”
Faster inventory – puts cash in your bank account faster. 💰
How you ask?
- By lowering expenses of COG, warehouse space, store rent (smaller store), insurance and taxes.
- By having fresh inventory that draws your customer back more frequently. And if you have the right product at the right time they are buying more frequently. Yep, that’s means sales increase!
Conversely, slow inventory does the opposite.
- Miss your sales goals because you are selling at a lower price because you must discount it.
- Your cash is tied up in unproductive inventory, so you are not buying new/fresh product.
- Low customer visits because they see the same thing over and over. Inventory is not fresh so why come back.
You need to have a plan, because you could turn too fast which causes broken sizes, stock outs and customer dissatisfaction.
Yep, there is a science of balancing the right amount of inventory.
Ok, Next Up SELL-THRU%
Sell through – how fast a product is selling. It’s the percent of inventory sold at any given time. Used to evaluate performance.
Sell-thru(S/T%) = Sales/Beginning on hand
Sell through goals vary by product but in general 10% a week is very good for fast fashion goods, which is about 10 weeks of supply. This is a good guide but depends on product and the product seasonality.
Ok, that was a lot of information. So, how much product do you need for you store:
- You need the correct inventory turn that is consistently turning inventory to cash.
- You need optimal sell-thru% that ensures product is productive.
How do you do this? By creating –
- Sales/inventory plan
- Assortment plan
- Compelling price points
- Enticing marketing and promotions
Your inventory is usually about 50% of your expenses, it ties up a lot of cash. How you handle it and invest in it is so important. If you are not turning it into cash regularly you will not be in business long.
For my clients I am looking at this at the total level, by category, by vendor and size. The numbers tell the story of your business.
If you are not the DYI type and prefer to hire an expert, click here to connect with us.