Cracking the Retail Conundrum – Higher Sales or Higher Inventory?
The organized retail business in India has come a long way, with its promise to the consumer of better products at better prices. For the owners and managers of the retail business, it has been a mixed story of growth and struggle to achieve economies of scale and profitability. It is well known that although the gross margins of various product categories in retail (from personal care and household products to fashion products like garments) is in the range of 10 to 200%, the net profits of various retailers in India is not so lucrative. Why is this so?
A large portion of the retailer’s working capital investment is in inventory: inventory that the retailer purchases in order to sell, at a reasonable margin. Managing this inventory without the twin negative effects of: high inventory (leading to obsolescence) and low inventory (l
eading to lost sales), is the biggest challenge for most store managers and supply chain managers today. An important measurement for most retailers is called ‘inventory turns’, i.e. the number of times the inventory of the retailer ‘turns’ in a year. In other words, what level of inventory is required for achieving a particular level of sales? The higher the inventory turns, the better the operational performance of the store / supply chain. Why is the metric of ‘inventory turns’ so important? Because there exists an important relationship between the ‘inventory turns’ and the ‘return on investment’ of any retailer.
So the challenge is: achieve higher sales, through better availability of all SKUs (stock-keeping units),without causing excessive investments in inventory. How does the retailer achieve this? The answer lies in understanding the dynamics of demand, supply and the variability in demand and supply. Should the retailer focus on a better forecasting model for demand prediction? Can improvements in supply help the retailer achieve superior inventory turns? Which is the better choice?
To know more on the solution for retail, call Javin on +91-98671 94476 or email him on
firstname.lastname@example.org. What benefits can a retailer expect?
Improve availability (fill rate)
Streamline inventories and improve cash flow
Increase sales (not by 5%, 10%, but a quantum jump)
Increase inventory turns and profitability
All the above, without a significant capital investment!
MD & CEO