Inventory Management 101: 4 Techniques to Increase your ROI

Any resources you spend on inventory can’t be used to grow your business. Spend your resources wisely. 

Let’s cover the basics of inventory management. It’s one of the most difficult balancing acts you face as a retailer, and it’s also one that’s critical for your store’s cash flow and revenue.

Think of inventory as a placeholder for your hard-earned cash. You invest in products, and you only get your money back (and make a profit) once you actually sell those products. That’s why solid inventory management is crucial to your success — it can quite literally make or break your business.

Now, the thought of inventory management might make you feel a little like this:

But don’t worry, you’ve got this.

Use your retail POS’ inventory reporting capabilities and these four techniques to maximize your inventory’s ROI. 

1. Get rid of dead inventory
2. Evaluate slow-moving inventory
3. Double-down on what sells
4. Sync your inventory in-store and online

1. Get rid of dead stock

Dead stock is any inventory that doesn’t turn over (meaning it doesn’t sell). If you aren’t using inventory management software, you run the risk of having dead stock that stays in your back of house or on your shelves, forgotten and unwanted by your customers. Just like the name suggests, dead stock kills your store’s profits. 

Dead stock doesn’t just take up store space, it ties up resources and leaves you with less to put back into ordering more inventory or investing in marketing. For most retailers, if stock hasn’t sold after six months, it’s likely to drag down your inventory turnover ratio. So let’s take action and eliminate your dead stock. Here’s how. 

• Launch a flash sale or promotion and discount the dead stock’s price to get some quick sales. 
• See if your distributor is open to taking back the dead stock in exchange for new inventory or a reduced price on your next purchase order.
• Last resort: if none of your promotions or distributor negotiations work, consider donating the dead stock to charity to get a tax write-off.

The first step to stocking your store’s shelves with inventory that sells is often getting rid of the inventory that isn’t. 

2. Evaluate slow-moving inventory

Unlike dead inventory, which doesn’t sell at all, slow-moving inventory is still selling — just at a rate that’s slower than you’d like. slow-moving inventory runs the risk of becoming dead inventory if you don’t intervene. 

Similar to dead stock, slow-moving inventory ties up your resources and negatively impacts your store’s profitability and cash flow. But how do you determine if a specific item is slow-moving?

Using your POS system’s inventory reporting to isolate each individual product and calculate that product’s inventory turnover.

Set selling targets

Consider setting selling targets in your POS system so that you can easily identify which products fall under target goals, which aren’t selling at all, which are selling better than you expected. This helps you twofold. Firstly, you can spot your slow-movers before it becomes a bigger problem. Secondly, you can reorder the products that are more popular than you initially expected to keep up with demand.

Give slow-moving stock more visibility in-store

You can refresh your store’s visual merchandising and place your slow-moving inventory next to some of your best-sellers that are related. By placing them next to products that you know your customers like, you’re both making them more visible and increasing the odds that customers add them to their cart.

3. Double-down on what sells

While you might determine which inventory you purchase based on your personal preferences (which is okay. You want to project a specific aesthetic, after all), you should always use your POS inventory reporting to see which products are your best-sellers and double-down on stocking more of what’s bringing in sales.

For many, this will shed light on the 80/20 rule, which essentially means that 80% of your store’s sales are likely generated by about 20% of the items you sell.  

Identify your most profitable products, and double-down on selling more of them. Additionally, identify complementary products and focus on cross-selling them. Try to remove and emotional attachments you have to your inventory and let your sales data dictate what you decide to restock. 

4. Sync your inventory in-store and online

According to Statistica, online sales are projected to account for 17.5% of all retail sales by 2021. If you don’t already have an eCommerce store, it’s time to jump on the bandwagon. If you do, it’s time to start optimizing.  

With the right eCommerce platform, migrating your brick-and-mortar store online is a straightforward process. The result of doing so is that you get a 360-degree overview of your entire business while selling your inventory to a larger addressable market. 

The bottom line

Your store’s inventory is the backbone of your cash flow. Remember that having an inventory management gameplan in place will help you minimize losses and maximize your inventory’s ROI. 

1. Get rid of dead inventory
2. Evaluate slow-moving inventory
3. Double-down on what sells
4. Sync your inventory in-store and online

Take control of your inventory management and you’ll stop wasting valuable resources, which is essential for your store’s growth, both short-term and long-term. Establish an inventory auditing, buying and selling process that works for you and reap the rewards for years to come.