Edge Retail Academy Blog

Reduce Your Inventory But Not At The Expense Of Sales

I’m sure I don’t have to tell you how important inventory is to the sales that occur in your business. After all, if you don’t have it you can’t sell it! The fact remains however that success for your store will depend on having the right inventory – and this is more critical than having the right amount.

A quick analysis of your existing inventory will reveal a couple of things. Firstly, a very small number of items are generating a very large amount of the sales. These units will typically represent less than 10% of the items in a US jewelry store, but contribute to over 75% of the sales in most cases. For those of you familiar with the 80/20 rule this is taking it to extremes!

“The typical jeweler allows their inventory to be controlled by their customers, not by themselves”

This ratio of 10% is low by international standards. Although a minority of the inventory will always account for a majority of the sales you would normally expect to see 20% or more of the items contributing this sort of level of revenue. So, if the typical US jeweler can achieve this with only 10% of their items are they getting better efficiency from their inventory?

Sadly, no. You would expect to see a better stockturn to reflect this, but unfortunately, we know many US jewelers suffer from a lower stock-turn. The reality is they are not being efficient, but are, in fact, missing out on sales. Based on achieving these sorts of numbers, if two jewelers had the same amount of inventory but one had 20% of their inventory as good, fast sellers and the other had only 10%, then the first jeweler is offering twice as good a selection – and is on their way to achieving twice as much in sales.

Inventory levels climb during the Christmas period, as can be expected. However, the typical jeweler controls their inventory by not replacing items that sell. If sales aren’t happening, then inventory levels remain high. The problem is, the majority of sales are good items and if the jeweler takes the attitude of not replacing these items, then he is dropping his selection of good selling pieces that are available. They are allowing the customer to choose what inventory should be reduced instead of making that decision themselves.

It is important that the right inventory disappears. In some cases, we have seen the average level of inventory drop with a few jewelers. Unfortunately, during this time the amount of fast selling and new inventory available to show customers has also dropped. This means not enough of potentially good selling pieces were available. So, inventories have dropped, as they have needed to, but it’s not the right inventory. Most stores have weakened their good selection, and this is not a positive.

So what can be done?

  1. Above all else reorder fast sellers. It is tempting to keep money in the bank but that is a short-term answer to a long-term problem. You need those good sellers to keep regenerating profit. The only way to improve performance long term is from more sales. The secret to more sales is having more of the right product. And the right product is the one’s that your customers are telling you they like –and it’s their wallets that are doing the talking
  1. Set a plan to eliminate the aged inventory. There are a number of methods to doing this that we can advise you on. In fact, there are different stages of strategies, and difference advice based on the category of merchandise and the specific age of it.   
  1. Control your buying. Don’t commit to finding new unproven items when the pieces that have sold well have not been ordered back in. The numbers don’t lie.

If we can help you analyze your inventory, to obtain a healthier level and selection, please do not hesitate to reach out. Our complimentary Business Opportunity Analysis may be helpful to you.

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