"Entry Exam" for New Items in Your Stores

Question: "We must keep bringing in new items. But, how do we keep from being over-bought?" 

Answer: "Very carefully!"

Ahh, the appeal of new items. Or, your customer's ever-growing "wish list" items. But, when you are also trying to control inventory, and keep turns up, the challenge is, "Really, which should you buy?" 

• As many retailers are only too aware, if you are not vigilant, you may experience bloated inventories, which can cascade very quickly into cash flow problems.

Here are 6 key questions for you and your buyers to ask yourselves as you consider new items. We think of it as an "entry exam" for merchandise. It's a very quick way to identify which items actually deserve to be in your store.

#1. Can my customers get this item at other stores in my market area? 
If yes, it probably has no pulling power.

#2. Is this a good margin item, or is it subject to a lot of price competition? 
Slow turners with weak margins are double trouble.

#3. Does having this item in stock help me sell other higher-margin merchandise? 
If not, you may not need it.

#4. Can I get faster delivery on this item than I am now getting? 
If yes, you may be able to cut back on your stock.

#5. Do I order larger quantities of this item than I actually need in order to take advantage of price breaks? 
If yes, you may be coming out on the short end when you figure in all your carrying costs.

#6 Do I have an emotional attachment to this item that reflects my personal taste rather than a business-like response to my customer’s desires? 
If yes, get rid of it!

Go here in the Library for Owners at The Retail Owners Institute(R) for more useful and practical insights and tactics about protecting your store from inventory bloat. See how quickly you can achieve greater control of your inventory!

New items? Oh my, yes. 

Too much or too many? Not any more!

Raise Turns...and Raise Cash!

Looking for ways to get more cash out of your retail business? Start focusing on raising turns! Here's why.

For every $1 million of annual sales, assuming 40% Gross Profit (Margin), the difference between 2 inventory turns and 3 turns is…$100,000 in cash!   

(Have a $3 million operation? That's $300,000. $5 Million in sales? That would be $500K cash. And so on.)

The dynamics of improved inventory turnover are impressive indeed!  And well-known to successful merchants. The Retail Owners Institute believes that all retailers should know and use this powerful cause-effect lever.  

Want an Example? Here Are Two: H&M and Zara 

Consider two retailers that are re-inventing apparel retailing worldwide, H&M and Zara.  By effective use of technology, both are raising inventory turns in their stores to unprecedented heights. And now, consider the ripple effect of that management focus:

• The high turns have reduced markdowns
• thus raising margins. 
• Meanwhile, stores always full of very fresh merchandise 
• excite and please their customers! What a concept!

Cause-effect, cause-effect. It all starts at the top, with the discipline to focus on ever-increasing inventory turns. H&M and Zara offer powerful examples for all retailers.

Or, as Michael Gould, Chairman of Bloomingdale's, so famously said:

"No retailer ever filed bankruptcy because their turns were too high." 

"So, what should my turns be?"

Wonder what your turns "should" be? Or, how your store compares to others like yours?

The ROI posts 5-year trend charts of 6 Key Ratio Benchmarks that retailers should be monitoring. These trend charts are available for 55 retail verticals. One of those key benchmarks is inventory turnover. 

To see how your operation compares to other stores like yours, check out the Key Ratio Benchmarks at The ROI site. Go to this page on The ROI site to find your retail segment.