The main goal of any retail business is to be able to sell as many of your profitable products as quickly as possible and not tie up capital in slow-moving, unprofitable items. For this to happen, effective retail inventory management relies on skilful teams, streamlined processes and shared, accurate data to set the optimum product assortment in the right quantities for each store / channel. Provide shoppers with the right selection of products and have stock readily available and you maximise your chance of winning the sale. Fail to do so and be prepared for your competitors to eat your lunch.It has been estimated by IHL Group that retailers worldwide lose a staggering $1.75 Trillion annually due to sub-optimal inventory decisions including:
- Preventable Returns: $642.6 Billion each year
- Out-of-stocks: $634.1 Billion each year
- Overstocks: $471.9 Billion each year
The average retailer loses 4% of potential revenue due to customers buying products from other retailers when items are not immediately available for purchase.
Much of this can be avoided by following some key principles of effective inventory management and it can quickly become a source of competitive advantage.
In fact, within the Retail Express customer portfolio, we have seen businesses quickly add $15,000 annual profit per store simply by implementing these inventory optimisation strategies.
So, what are the practices that actually have impact?
1. Maximise Inventory Availability In-store and Online - Endless Aisles
Informed retailers take an omni-channel approach to inventory management known as an Endless Aisles. All stores and channels have access to ‘pooled’ inventory across the entire supply chain, in direct response to customer requests and needs. Employees can readily access product and inventory data, and customers have access to stock quantities regardless of whether they step into a store or shop online. Imagine you had a never-ending warehouse, fully stocked with every SKU in every size, colour and variation. This essentially describes an endless aisle approach, except instead you use a wide range of systems and practices to provide that inventory availability including:
- Making all your in-store stock available online (and vice versa)
- Click & Collect and in-store stock check
- Automated inter-store stock transfers, or delivery to home/work from other locations
- In-store kiosks or tablets that allow customers to browse your entire product range
With an Endless Aisles approach, you are not only maximising your stock offering but also facilitating a better customer experience, as they can choose whichever channel is quickest and most convenient for them. Of course, such an approach will only work if you manage your inventory data properly, which brings us to our next key practice…
2. Use (accurate, live) data to drive decisions
Having accurate, real-time data, reports and dashboards that allow you to get visibility, unveil blind-spots and make informed decisions is a critical aspect of managing inventory in your retail operation.
Retailers should be basing their product assortment and inventory forecasting based on a comprehensive analysis of which products or categories have performed well in the past and key trends in their sales and customer data (such as seasonal cycles and key segment demand). Once you have these trends identified, it will help you to set appropriate order quantities and frequencies, pricing/margin strategies and marketing programs. Yet many still rely on gut instinct or even their suppliers recommendations to plan inventory rather than letting the data guide them.
It is also critical to be continuously reviewing stock versus sales in each of your locations and channels. Do you know for a fact which products are under and overstocked across each of your stores? By being informed about these situations, you can move stock around your operations, plan promotional strategies to move excess stock or leverage best performers and make better decisions about future inventory purchases Your data needs to factor in stock on hand, laybys and backorders in real-time across your eCommerce and bricks and mortars stores. Many low-end POS Systems fail to incorporate all of these variables which begs the question - are you making decisions based on inaccurate data?
Data needs to be structured into categories and sub-categories, to allow you to perform advanced searches or get a high-level, helicopter view of key trends.
3. Use Automated Replenishment To Optimise Stock Levels & Eliminate Manual Admin
Armed with reliable, live data, an advanced Retail Management System like Retail Express can essentially do your inventory replenishment for you, factoring in:
- Sales by day (run rate)
- Lead time from the supplier
- How much stock you have in each store
- How much is already on order or in-transit to each store
- How long you want the new stock to last you for
You will be more likely to purchase items that will sell and minimise overstocks and under-stocks.
You’ll also be able to save many hours of manual admin. On average, a retailer can cut their labour hours spent on replenishment by 50%, saving $7500 a month.
Want to add $120,000 Per Store To Your Bottom Line?
It’s been found that retailers who exceed customer expectations and offer the quickest and easiest access to the right products, can cement a powerful competitive advantage in their category. Our customers see an average of $120,000 increased annual profit per store by enabling such strategies.