Inventory Management is Key to Retail Profitability

I came across two interesting articles in the past few days that shine a light on the importance of managing inventory levels carefully.  The first was an info-graphic by Stitch Labs that makes the shocking claim that 45%-90% of all business expenses come from inventory costs.

Granted, this is a very wide range; however, even at the low end, that is an enormous percentage of overall expenses.  It really highlights the multiplier effect on expenses that inventory can have.  There is the cost of capital tied up in the inventory, the cost of warehouse space to hold it, insurance, write-down expenses as that inventory loses value, heat for the warehouse, employees to staff the warehouse, health insurance for those employees, etc., etc.

I also was reading a Reuters article by Phil Wahba and Dhanya Skariachan, titled “How US retailers are building  up their online muscle”.  In this article, the authors make the  point that brick and mortar retailers are developing strategies to go after online retail in a big way.  They are developing strategies to leverage their unique assets (or some may say ‘liabilities’)…their stores, but utilizing them as online order fulfillment locations.  This, they claim, will allow them to manage inventory much more carefully.

For example, Macys.com has sophisticated software that decides which store to ship an online order from based on the likelihood that the product would end up getting marked-down in that store.

The authors say, “From Macy’s to Home Depot Inc and Best Buy Co Inc , retail executives are racing to speed up order delivery and improve inventory management, which if done well, can help profit margins.”

If you believe the Stitch Labs numbers, this can have an even bigger impact than you might expect.

Of course, returns and excess, overstock inventory is a major component of this equation.  This all points to the importance for retailers of products like B-Stock’s Liquidation Sales Management solution.