Sell More of the Right Stuff
Effective inventory management is key to successfully operating a retail store. This can be done by making sure every dollar you invest in inventory is effectively earning margin dollars.
Have you ever heard of the 20/80 rule? It is a concept that has been applied to almost every element of life, and it applies equally well to retail. The 20/80 rule states “20% of the population generates 80% of the solution.” When you apply it to retail, it means 20% of the department’s inventory generates 80% of the margin.
There is a tag along rule that says “the bottom 5% will never be missed.” This concept can also apply to retail inventory management.
Effective retail stores use these two rules to manage their unproductive inventory. The result is a significant increase in inventory turns and the return on investment percentage.
Here is how it’s done:
Start by identifying items in the three areas (top 80%, middle 15%, and bottom 5%) using your point of sale system’s best seller report. This report should rank items for a department by margin dollars earned during a selected period.
Once you have identified the three groups of items, then:
- Promote the items that make up the top 80% of margin, and make sure you have plenty on hand for people to buy!
- Merchandise or discount the bottom 5%, and do not reorder these items.
- Selectively review the middle items, and limit your inventory investment in these items.
The use of these rules and an effective POS system’s best seller report can help you maintain a lean and productive inventory.
Contributed by Ensign Systems, Inc., makers of POS IM Software
