When it comes to retail, your inventory is the most important aspect of your business. If you are a small retailer, this holds true even more. The merchandise that retailers sell says a lot about your business; consumers and potential customers will have a first impression because of the inventory you have, whether bad or good. Having inventory control coupled with smart thinking are important. It can make or break your establishment.
Make sure you have an inventory management system in place to be competitive and grow your business.
Small retailers view their inventory as a way of making their profit. If you do not have an item, you think of the item as one way in which you are not making profits. To say the least, you must choose merchandise wisely to build up a great inventory of items to sell. It is how you profit as a small business. See also How to Determine Inventory Safety Stock.
Retailers come to a stop when faced with inventory. Inventory is the major cost of keeping your business going. Inventory is the most expensive item on your list. If your inventory is not spent carefully and then sold accordingly, a bad judge in buying inventory could put you in the hole hundreds or thousands of dollars. Choosing your inventory carefully is the only way in which you can ensure your business is making profits instead of losing.
Unfortunately, the price of the inventory is far greater than the cost on the invoice. Retailers must deal with carrying, shrink, obsolescence and damage costs as well. In addition, retailers must also worry about losing money when there is too much inventory. All of these costs can add up all too quickly. These costs are simply reality; they will be a large part of your income statement wearing down your profits.
Let’s explore inventory costs a bit further.
Inventory carrying costs can include finance charges, insurance and taxes, process and handling, inventory control, and cycling costs. Inventory finance charges are more often than not just the cost of inventory, particularly seasonal merchandise. This cost is relatively simple and easy to calculate and manage. The more inventory merchandise you buy, the more finance charges you are going to be paying.
Inventory insurance and taxes are variable, meaning that they can change with the inventory value. If you have excess inventory it can be especially costly in this area. Excess inventory can make up a large disproportionate percentage in inventory value at the end of the year.
Ordering and processing costs of inventory include the costs of shipping the merchandise, handling merchandise, ticketing merchandise, and stocking merchandise. Almost every retailer will see these costs as the basic costs of running a retail business. Remember, the more merchandise you order, the more costs there will be for ordering and processing.
Physical merchandise costs are the cost of maintaining your merchandise and inventory physically. Costs for this can include everyday store recovery after sales, re-merchandising or re-ticketing of inventory, ticketing items for clearance, and setting and maintaining displays. It is easier to maintain a store that is not heavily stocked with merchandise.
Inventory control and cycle counts are critical in order to keep your inventory up to date and current. This also brings awareness to any losses of inventory. Just like ordering and processing fees, retailers see these costs as just part of running a business. If you try to skip these important steps in maintain your business, you will lose more down the road. Keep on top of your inventory to ensure maximum profits. See Manage Your Retail Inventory.
All of these inventory costs are real. Many of them are labor related. Remember, inventory management is needed for maximum success.