Inventory Turnover...So What?!

We had an inquiry recently from a three-store owner asking about inventory turnover.

"Is it really important?" he asked.

Our reply, after being struck by the question, started out as less than adequate, to be sure. We explained the formula (Cost of Goods Sold divided by Average Inventory @Cost) and he politely agreed.

Then we explained the difference that turnover rates can make:

• "For example, for every $1 Million in sales at 40% margin, the COGS would be $600,000. If turns were 3, average inventory would be $200,000.
• "But – if turns were 4", we continued, "inventory would be $150,000, helping cash flow by $50,000."

Again, he politely agreed. Then, after a pause, he asked, "But, is it really important?" 

Finally, we got it! And our answer improved.

Key Number Each Month

An Open-to-Buy system that uses turnover rates as the "governor" projects not only the buying budget for each month. It also projects the targeted ending inventory levels for the end of each month.

"Like the white or yellow lines on highways," we offered.

"Wow!" came his reply. "You mean that our buyers should steer their inventory levels to hit those planned ending inventory numbers?"

"Well, that's what the pros do," we responded.

"Hmmm.  Now I see how it's all connected!

"Hitting those ending inventory targets will control my inventory levels. That will help the cash flow. And that will reduce our debt. All of which will help me get some sleep at night!! 

"Guess turnover IS pretty darn important!"

Then we tossed out the classic line from Michael Gould of Bloomingdales, who so famously told his buyers: "No retailer ever filed bankruptcy because their turns were too high."

That Other "Obesity Epidemic": 80% of Retailers Are Over-Inventoried Some or All of the Time!

Retailing is different from all other industries. Why? Because inventory is the only engine of profitability. Managing the inventory is truly the #1 responsibility of top management in retail.

And yet, about 80% of all retail operations are over-inventoried or out of balance some or ALL of the time!

• As such, these retailers become short or out of cash. 
• Or they are forced to cut margins drastically to get rid of non-selling merchandise. (Ahh, which is worse? Out of cash or out of profit??)

The reasons for this rather sad situation are many, but two major issues stand out.

• The sellers of merchandise, the vendors, are very well trained at their job - selling! And meeting sales quotas.
• Meanwhile, the retail buyers of the merchandise, who may be excellent selectors of product, are not so well schooled at the management part of their job: setting and meeting buying budgets.  

(The reps usually know that budgeting inventory purchases is simply a four-part formula, called "Open-to-Buy". But do you think they want the buyers - their customers - to use a budgeting system? Of course not! "Are you kidding?! We don't want them that smart!")

But are the buyers really the weak link? Not usually. 

Instead, the problem is traceable to senior managers who are under-trained – or under-committed – to their #1 responsibility: managing and controlling that inventory!!!

"Fitness Center" for Out-of-Shape Inventories

Those days now can be over! With some humble delight, we love that thousands of retailers from around the world are benefiting from this (cheap!) online resource from The Retail Owners Institute®: the Open-to-Buy Center. 

• Those who use the Open-to-Buy Center learn the basics of Open-to-Buy.
• Plus, they generate their own buying plans, all online, with the Open-to-Buy Calculator . Easy and fast for retailers. 

Click here. Go to the Open-to-Buy Center  See how this "fitness center" for out-of-shape retail inventories is helping to combat that other "obesity epidemic".

Knowledge is power! Some day soon, the playing field may be level!

Tired of the Mystery and Voodoo Around Open-to-Buy? So Are We!

Most retailers have heard of the inventory managing tool "Open-to-Buy". (BTW, "Open-to-Buy" is slang for a budget for how much inventory to bring in, and when.) But all too often, Open-to-Buy has been shrouded in mystery. Too complex and/or too expensive.

Those days are over! The Retail Owners Institute is on a crusade to spread the word: Managing and controlling inventory IS within the reach of all retailers.

Here's the deal: Open-to-Buy is just a 4-part formula!  And any retailer, anywhere, can put that formula to work, on their own!

What can an Open-to-Buy do for a retail operation?
    •    improve margins
    •    improve cash flow
    •    reduce the time spent on inventory management
    •    help have the right merchandise in your store at the right time
    •    avoid excess inventory
    •    invaluable when delegating to buyers
    •    help you sleep at night!

How Does The ROI Take Away the Open-to-Buy Mystery? Here Are Four Answers!
The ROI is the foremost resource for retail financial training and know-how. The Institute is dedicated to taking away the mystery of retail finance. Retailers CAN control the cause-effect connections between sales, margins, expenses, profits, inventory turns, and cash flow.

Here are 4 different ways (free or very low cost) that you (or your staff) can learn more about controlling inventory with an Open-to-Buy plan.

#1. Free TOPICAL TUESDAY webinar
November 15. 10 am Pacific Time/ 1 pm Eastern Time
"Back by Popular Demand: CONTROLLING INVENTORY LEVELS"
Free registration • Go here
About 80% of retailers are over-inventoried some or all of the time.  As we approach this particular Holiday Season, having excess inventory may be especially treacherous.

Right now, controlling inventory is the #1 job of the CEO or owner. This live TOPICAL TUESDAY webinar with Pat Johnson & Dick Outcalt, Co-Founders of The Retail Owners Institute, will review the basics of inventory management, and show how The ROI's online multi-department Open-to-Buy Calculator automates the number-crunching for you. 

There will be plenty of time for Q&A, so bring your questions (and your buyers!!)  Go here to register for free

#2. On-demand info on The ROI site: CONTROLLING PROFITS, INVENTORY & CASH FLOW
This is an entire section at The ROI, dedicated to this major responsibility of retailing. Available online, 24/7, on-demand. Explanatory how-to articles that reduce the mystery. Short videos that teach, explain, and illustrate. Online calculators that automate the process (nothing to download or install; they just work!)

#3. The OPEN-TO-BUY CENTER
This is one of the new "special purpose portals" of The ROI: an entire website dedicated to Open-to-Buy! The remarkable multi-department Open-to-Buy Calculator is hosted here. Any retailer, anywhere, can do their own Open-to-Buy plans in just minutes. (Try it yourself! 1st month is just $4.95!) 

And, if you need some refresher, the Open-to-Buy Center includes articles and videos. Just look under the RESOURCES tab.

#4. BASICS of OPEN-TO-BUY eLearning Kit & Calculator
Want more structured training? Need to train your staff in Open-to-Buy? Here's the perfect answer!
The BASICS of Open-to-Buy is a self-paced, online eLearning "KIT": a step-by-step how-to training course, and an online "calculator" that automates the cause-effect number crunching.

Talk about doing away with the mystery! And it's needed more now than ever before! Go to The ROI's eLearning portal for details about this new management training tool for retailers and buyers. (Be sure to watch the short video about the BUYING PLAN Forecaster!)   "Learn it. Do it. Profit from it!"

There you have it. Four different ways that you and your staff can make Open-to-Buy planning your new best friend! Just depends on how you like to take in information. But the key: no more mystery about how much to buy, and when. (And, no more intimidation by "the experts".)