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retail death

How to Prevent Inventory Issues

Retail and wholesale in Australia are getting increasingly difficult with more International brands entering the market and a slow retail environment. This is putting pressure on sales and margins and in turn is triggering shareholders and banks to demand tighter controls to mitigate their risks.

Businesses are coming under pressure to increase ROI through increased sales, controlled expenses and properly managed cash flow. For most retailers and wholesalers, inventory is one of the key assets (if not THE key asset) that directly impacts all three levers – sales, expenses and cash.

Retail going through a tough time

In general, Retail throughout the world is going through a rough patch. The U.S. is on pace to have more store closures this year than any year in recent times. The list of brands / retailers who have experienced hard times (often attributed to poor inventory management) is staggering. Some of the big names in the US include JC Penney, The Limited, Circuit City, American Apparel, Payless, Sears and Radio Shack. Even Macy’s is having to shut stores.

In Australia, we have seen too many retailers struggle and often succumb to the difficulties of running a successful retail business. Dick Smith and Retail Adventures (Crazy Clark and Sam’s Warehouse) were two high profile failures that had inventory issues that contributed to the businesses being liquidated. To name a few in an ever-growing list, other Australian retailers that have seen some rough times recently include Herringbone, Howards Storage, Payless Shoes, Laura Ashley, Perfume Empire, Robin’s Kitchen, Marcs, Pumpkin Patch, Borders (a while ago), David Lawrence and Rhodes and Beckett. Many of these could have been / could be saved with better inventory controls.

Early warning signs

There are simple warning signs of a company that has potential inventory issues. These signs can develop on their own or more often as a group of signals.

  • Cash flow issues
  • % of SLOB (slow moving or obsolete) stock to normal stock increasing
  • Lost sales due to running out of top selling SKU’s
  • Margin erosion due to high levels of discounting
  • Warehouse cost escalation
  • Stock turns lower than industry sector norm
  • Broken ranges
  • Growing SKU count
  • Sales people blaming systems or inventory levels on missed budgets

Causes of Inventory Problems

There are three main areas of interest when looking at the reasons behind the problems:

  • Process
    • Incorrect / insufficient OTB (Open to Buy) procedures
    • Lack of product hierarchies
    • Minimal range planning
    • Unchallenged sales forecasting
    • Not using the system properly
  • People / Strategy
    • Organisational structure
    • Separation of duties between buying and merchandise planning
    • Culture / discipline
  • Data
    • Incorrect / corrupt data
    • Lack of understanding where number come from
    • Lack of transparency
    • How you look at the data – what reports – what KPI

How to fix the Problem

Unfortunately, there is no silver bullet when tackling inventory problems. It is necessary to address several areas to get the wheel moving in the right direction. Typically, a process will tackle a handful of issues from the list below:

  • Process (develop or improve)
    1. Range Planning
    2. Product hierarchy and assortment
    3. OTB process
    4. Product pyramids
    5. New product launch
    6. SKU Rationalisation
    7. System synergies
    8. Rules around seasonal / promotional / core
    9. Identification and management of A, B, C and D stock
  • People / Strategy
    1. Inventory strategy that drives culture and discipline
    2. Separation of duties between Merchandise Planning and Buying
    3. Correct culture and discipline
  • Data
    1. Proper dashboards that show relevant KPI
    2. Correct / current valuation of stock
    3. Proper reporting
    4. Looking at data through different lenses
    5. Understanding the link between category management, range planning and SKU management


Benefits of Strong Inventory Management

The impact of well managed inventory is wide reaching and highly beneficial to all aspects of the business:

  • Increase Sales
    1. The right stock at the right time
    2. Improved delivery performance
    3. Balanced inventory
    4. Transparency for sales team
    5. Shorter lead times
    6. Decreased stock outs
    7. Increase in customer loyalty
  • Decrease Cost
    1. Warehouse efficiency
    2. Less time spent on dealing with bad inventory
    3. Lower holding costs
    4. Reduced mark downs
    5. Employee efficiency
  • Increase cash flow
    1. Increased stock turns / decreased months’ stock on hand
    2. Reduction of obsolete stock


If you would like to learn more about how you could improve your inventory management to benefit your business, please contact us at mike@theretailcoogroup.com
Mike Holtzer – Owner, The Retail COO Group

Challenging, questioning, confronting! Experienced Retail / Wholesale CEO, COO and CFO with over 25 years of International Executive Management experience in public and private companies spanning over four continents: Australia, North America, Asia and Europe.

His proven leadership and operational management skills have assisted multiple wholesalers and retailers around the globe. His no-nonsense approach gets things accomplished quickly and efficiently. With his experience and pragmatic approach, Mike is able to identify the source of an issue and develop clear and concise solutions.