How to Combat Inventory Turnover Problems

Posted on 15 Dec 2015
 

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What is inventory turnover?

Inventory turnover is a measurement of how many times the retail inventory is sold during a twelve-month period.

While total store turn rates are important to know, turn rates are much more meaningful when viewed at the classification level.

  • Jewelry
  • Firearms
  • Electronics
  • Art

Inventory turn rates are a measurement tool and turn rates vary according to:

  • Class
  • Individual Store’s Geographic Locations
  • Store Personality
  • Customer Demographics
  • Merchandise Mix
  • Marketing & Advertising

How do you calculate your inventory turnover?

Turnover is calculated over a continual twelve-month period of time. It is twelve consecutive months of retail sales divided by the average retail inventory for the same twelve-month period.

Turnover = Sales ÷ Average Inventory

How does turnover affect cash?

Surplus inventory collecting dust means, too many items were purchased, defaulted, or are priced too high.

On the flip side, not having enough inventory results in stock-outs or insufficient selection. This will likely result in lost sales and future foot traffic which has the same impact of less cash in your bank account.

The best situation is to have an inventory selection that is just right, and a fine tuned level of turn is the result of this balance. It comes from knowing what to expect for each inventory category.

Increasing turn without sacrificing lost sales is the science of merchandise planning.

Why is optimizing inventory turns important?

Too much inventory ties up working capital and creates an over inventoried position.

A pawnbrokers most important piece of inventory is cash, without cash they are secondhand dealers.

Improved inventory management not only can reduce the capital tied up in the inventory itself, but also reduce the carrying costs associated with that inventory, both of which will improve the bottom line. Categories include:

  • Facility costs
  • Utilities
  • Insurance & taxes
  • Labor
  • Physical counting of inventories, cycle counting
  • Obsolescence
  • Lost opportunity costs
  • Deterioration

How much can one turn affect cash on hand?

ABC Company Information:
Total Inventory Value (Cost) $ 50,000.00
Resale Price of Inventory $ 250,000.00
Inventory Turns equal   2
Annual Sales $ 500,000.00
Days in Inventory   180
Reduce Resale Price by 20% increasing turns by 1
Total Inventory Value (Cost) $ 50,000.00
Resale Price of Inventory with 20% Discount $ 200,000.00
Inventory Turns would equal   3
Annual Sales $ 600,000.00
Annual Sales Increase $ 100,000.00
Days in Inventory   120

PawnMaster helps clients optimize inventory turns

PawnMaster has 14 integrated reports that give you the information you need to optimize your inventory turns.

Also available are software modules and hardware devices to help you and your team become more efficient and minimize costly mistakes.

If you're not using these tools, call us today to learn exactly how they can help you.

1-888-949-7296

Richard Lutz

Written by Richard Lutz

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