When it comes right down to it the most important measurement in retailing is how much inventory is available for future sales demand. Too much inventory ties up cash and leads to the erosion of margins. Too little inventory will result in lost sales. While the best tool for managing inventory levels is, hands down, a good Open to Buy, stock availability analysis based on last year’s performance provides helpful information.
The best comparisons are those that we can relate to well. Consider a pretty simple but easily understandable analysis.
- Compare Season to Date sales this year to the same period last year.
- Compare current On Hand and On Order (availability) to inventory levels last year.
- Compare Sales through the end of the season based on last year’s sales to the inventory available.
It’s pretty easy to identify areas of opportunity and concern when analyzing performance by classification, vendor, or other reporting group. For example, if sales are trending up 20% over last year so far this season but there is less inventory available through the end of the season compared to last year we might want to consider buying more inventory for that class, vendor or merchandising group.
Of course the obvious concern with this analysis is that last year’s mistakes aren’t repeated. If last year’s turn rates weren’t optimal, a drop in inventory might still support the sales increases. Likewise, dropping inventory in even a poor performing area can also cause a drop in sales. Comparisons to history is never as important as comparisons to the plan.
However, Stock Availability is a great analysis tool that many of our clients find helpful.
