It seems simple enough – keep an adequate supply of the most popular items, but make sure you don’t overstock - yet inventory management should be more than keeping the appropriate selection on hand. Successful inventory management involves balancing the costs with the benefits.
Many jewelers fail to appreciate the true costs of carrying all of that inventory. These can include insurance, taxes, storage and the sheer cost of money. As these costs continue to rise, tight inventory control is still one of the best investments a jeweler can make for long-term success.
The key to successful inventory management is adherence to strict controls, and this requires an uncanny ability to anticipate customer demand so that sufficient stock is on hand to accommodate sales volume, all the while avoiding shortages. The best way to do this is to understand inventory turns and create an accurate sales forecast.
Inventory turnover is the measure of how often, at the current rate of sales, you sell your entire inventory in one year. (To calculate inventory turnover, divide total annual sales by your average monthly inventory at retail, or annual cost of goods sold divided by average inventory at cost.) High profit stores generally have a 20 percent greater inventory turnover than their low profit counterparts. For this reason, it is important to understand exactly which inventory is moving and what part of inventory is collecting dust. Employing the simple strategies listed below can help improve inventory management.
- Computerize your inventory system to gain a better understanding of what your customers are buying and to simplify the buying process. Code your inventory with a purchase date to create an accurate aging report, and take action on slow moving goods.
- Review the reports to identify the fastest sellers, and make sure to keep them in stock.
- Determine which products are the least profitable, and consider reducing stock in those categories.
- Review your open orders and speak to vendors about canceling orders for products for which there is no great demand.
- Review some of your long term vendor lines and compare them to new vendors for similar, lower priced options.
- Look at purchasing inventory from jewelers going out of business, or manufacturer close-outs.
- Consider re-merchandising your store, and pair up older merchandise with newer goods. Price the older goods at great values to generate cash to use for newer, faster selling goods.
- Review your commission structure for your salespeople, and offer additional incentives to move dated goods.
When reviewing your inventory and considering markdowns, it can be helpful to use this mantra: “Better a dollar in your pocket than gathering dust as unsold merchandise.” A successful business knows how to move merchandise and understands that the price points may be different according to the type of inventory.
By using all of these strategies and your own judgment, you should be able to improve your cash flow and better manage your inventory for a new day and a more profitable new year.
Bob Epstein is CEO of Silverman Consultants, LLC. Offering a legacy in sales strategies for jewelers since 1945, Silverman Consultants provides guidance to store owners seeking to turn around a business, sell off unwanted inventory, or liquidate an entire store. With offices located in Charleston, South Carolina; New York, New York; and Saskatoon, Canada; the company helps jewelry store owners and chains formulate strategies designed to maximize revenue in times of transition, whether due to retirement, store closing, or simply when needing a boost in sales. For more information, visit www.silvermanconsultants.com or call Bob direct at 800-347-1500.