Mastering Retail Inventory Management

Retail inventory management is the core process to a successful storefront. The correct in-stock inventory drives sales, whether the business is a brick and mortar store on Main Street or a niche merchandising website. In many retail businesses, inventory is the largest single capital investment.

The right management of inventory investment equals outstanding revenues, while poor retail inventory management is a recipe for disaster. In a perfect environment, retail managers can:

  • Avoid tying up capital in overstocks Retail inventory management is different from other forms of inventory management as there are more options for avoiding overstocks. Retail managers should generally view purchasing controls as the primary method of avoiding overstocks. When demand projections fail, the next best solution is selling to the customer. This is true even at a substantial discount or even slight operating loss. By selling to the customer at a discount, it builds the customer-business relationship, and saves the business from additional carrying costs incurred with other reverse logistics processes.
  • Maintain accurate locator system data The core truth of retail inventory management is that you cannot sell what you cannot find for the customer. Failing to maintain an accurate locator system can have the same impact on sales that physical shrink via theft or damage. Real-time maintenance of an inventory control system, preferably one that incorporates Point-of-Sale technology, is critical to success.
  • Plan for overstocks and out-of-stocks At the end of the day, retail inventory management success is about being nimble. When overstocks do happen, or safety stock proves not to be enough, have a plan. Whether it is a “fire sale” or a method for expedited ordering, have a plan in place to address potential stocking level issues.

In order to achieve the right state of inventory, retail inventory managers must focus on all three major states of inventory:

  • Supply Chain Management
  • Internal Inventory Control
  • Market demand management via price controls and buying incentives

Retail inventory management does not start and stop at the four walls of the store. It starts at the product point of origin and ends in the customer’s hands. Providing proper leadership to a retail organization requires mastery of all parts of the retail supply chain.


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