Fresh Inventory is Like Mother’s Milk to a Child

In the absence of Mother’s Milk (ongoing fresh inventory), the child will wither! It is the mother’s milk that brings life, energy, and growth to the child. And so it is in business that fresh inventory is the life’s blood of the retailer.

At its most elevated level, the retail store will generate copious sales and profits, provided that there is an abundant stream of fresh and sustaining inventory. If inventory choices are attractive and competitive, the retailer will flourish like a rushing river.

On the other hand, if that stream becomes clogged with useless debris (obsolete and slow-moving inventory), then the flow subsides along with the sustainability of the river.

I have been in so many stores that contained a lot of inventory, but their sales were insipid. Not all inventory is created equal. Inventory has value only so long as consumers wish to purchase it. To the extent that store inventory has become obsolete, overpriced, shop worn, wrong sized, in the wrong colors or is present in the incorrect season, then the value of that inventory is greatly diminished.

For most tackle, marine, sporting goods and outdoor retailers, the lead time for obtaining inventory is likely less than four weeks from order date to receive date. Yet, the inventory turn rate for most tackle and sporting goods stores is around 2 to 2.5 turns. That translates to an average inventory of between 4.8 to 6 months of supply.

If the retailer can obtain fresh inventory, on average, within 30 to 45 days, why would the retailer need between 144 to 180 days’ worth of inventory on hand? Thus, past practices, lack of inventory analysis and full understanding of the principles of prudent inventory management all serve to diminish sales and inventory return on investment.

In contrast, the return on inventory investment and annul net profits are greatest when the turn rate is high and there is a higher percentage of fast selling SKUs versus surplus, obsolete, slow-moving inventory.

This is not rocket scientist stuff; it’s more like common sense. The higher your percentage of inventory that is considered to be “A” grade and fast selling . . . then the greater your gross profit dollars and the lower your average inventory investment will be. Together, that generates greater profitability!

As an ancillary benefit, as your inventory turns increase, then so does your liquidity and the reduction of inventory carrying costs. The net result is greater profitability!

Yep, sounds logical and doable. So why do so many retailers fail to do just that? In a word, retailers fail to maximize their profits via their inventory because they are not adequately schooled in the art of inventory management and/or they are not willing to put forth the effort and regimen required to manage their inventory to maximize return on investment.

Fresh, new, and desirable inventory is the “mother’s milk” for the child and your business. Bring in that which is new, fast moving and sustaining. As the season and demand changes, so should your product mix. In doing so, your sales and profits will excel. Now go make it so!