Inventory Management: What is the “Magic Mix” for success?

All of the retailers I’m working with are thinking about inventory this month. January is traditionally the month to do an actual hand count of all inventory in all locations. After a busy holiday season, the inventory count tells the story of how well we predicted our customers’ desires last year and will also inform purchases and product development for this year.

Many branded retailers develop their own products for sale and also sell third-party products that speak to their brand. Whether it’s a complimentary mix of products or a completely eclectic range of items, the choices speak volumes about the passions of the owners and what their store is all about. Finding the right mix of products is often the magic that drives sales.

This “Magic Mix” affects the financial health of the company. By analyzing sales data and reviewing that against the on-hand inventory, we learn important points that we can use to prevent stalling sales. Here is the data we are looking for:

Average sale amount. This number gives us our “sweet spot,” or the price point that drives your sales. The inventory mix should point your customers to this price point. If your inventory mix leans too heavily toward a higher or lower number, you may be missing your customer and losing sales. You should look to rebalance the inventory average price point right away.

Average turnover rate. Here we determine which items turn the fastest, slowest, or consistently throughout the year. We categorize each item into one of these three groups. If your inventory count reveals that only the most expensive and slow-turning items are left, be prepared to restock your sweet spot items and look for new items to replenish the Magic Mix. For seasonal items, reduce any surpluses that will not turn in the next 12 months.

Slow movers and selling off. As painful as it may seem, it is always better to liquidate slow-moving inventory—even at below-cost pricing—in order to recoup cash for the company to use for growth. Holding onto inventory can drag a company backward and impeded growth. Identify this inventory and find creative ways to reduce it. This could include selling items at a discount, repacking or repurposing items with other items, using items for customer gifts or promotions, and donating items to charity.