“It’s hard to sell apples from an empty cart” is another one of those retailing idioms that I find so charming. It refers to the fact that you need to have enough inventory on hand to generate good sales. But exactly how much is enough?

One answer to this is that you should always plan on having 20% more on hand than you think you can sell. You can try to predict your sales based on data from a previous year – so if you sold 20 Christmas mugs last year, you’d want to have 24 on hand at the beginning of this holiday season. (Until you have been in business long enough to have a track record for what your customers want, it’s a good idea to buy a wide variety of merchandise without going to deeply into any one line or style.)

Of course there are always changes in tastes, fads and buying habits – but previous experience will help you know whether to order 8 or 48 of an item for the next year.  As the saying implies, you will lose sales if you don’t have enough inventory on hand. This is in part because customers can’t buy what you don’t have, however it also takes into account the fact that for some reason customers are often reluctant to buy the last one of anything.

It’s easier to overbuy than to underbuy, especially since new goods always seem tempting compared to the stock on hand. It’s important to maintain a steady plan of markdowns in order to close out older merchandise while bringing in new. We use a dating system on our price tags to make sure that we don’t violate another retailing adage “don’t let inventory become family.”

Inventory turns is one way to gauge how much money you should have tied up in merchandise.  An inventory turn is a measure of how fast you are selling your stock. The simplest way to think of it is if you have an average of $100,000 at retail in inventory and your annual sales are $100,000, you are turning your inventory once per year.  Two turns or more is the goal, although this varies widely by industry.  If your turn is only one, you may have chosen the wrong merchandise for your customer base, kept unpopular goods on hand too long, or targeted a price point too high for your market.  Click here for an article from Shopify with helpful tips for improving your inventory turns.

Most shops offer a mix of products that customers need or want – and those they don’t know they need or want until they start browsing.  Although it’s important to use your dollars wisely, the allure of your inventory will be based more on your skill as a buyer than your ability to follow a budget precisely.

Happy Retailing,

Carol “Orange” Schroeder