Retailer’s Best Friend Part I: The 3 Must-Use Inventory Reports

Retail Revelations with Dan Holman
S6 Ep11

Effective inventory management is the cornerstone of a successful retail business. To make well-informed decisions, reduce costs, and ensure optimal stock levels, inventory reports are indispensable. These reports offer valuable insights into your product flow, empowering you to keep your shelves well-stocked and customers satisfied. In this week’s blog, Dan shares his three most important inventory reports that every retailer must use to remain competitive and profitable.

Stock to Sales Analysis Report

The Stock to Sales Analysis Report is a fundamental tool for retailers. It provides a clear overview of product sales and stock levels, enabling you to:

1. Identify Fast-Moving and Slow-Moving Products: Understanding which products are top sellers and which are underperforming is essential. This insight helps you allocate resources more efficiently and prioritize needed markdowns and reordering accordingly.
2. Prevent Stockouts: By tracking inventory levels alongside sales trends, you can avoid the frustration of running out of popular items, which keeps customers satisfied and maintains consistent sales.
3. Reduce Excess Inventory: The Stock to Sales Analysis Report helps you identify overstocked items. Excessive inventory ties up cash and will lead to costly markdowns. This report empowers you to take corrective actions before it’s too late.

ABC Analysis Report

The ABC Analysis Report is a valuable tool for classifying your inventory based on importance and sales contribution. It categorizes items into three groups:

1. A-Items: These are the products with the most significant contribution to your sales. Focusing on A-Items is critical for maximizing profitability and sales growth.
2. B-Items: These are mid-range performance products, which are typically a little thicker in inventory (more than I can sell in-season) and represent a lesser contribution to your seasonal sales performance. Watch your B-Items and act on them sooner than later.
3. C-Items: C-Items are the dogs in your inventory – they are the bad fit, bad style, wrong colour, and generally represent a poor buying decision. I call them the “what the F was I thinking” products. Your focus should be to immediately liquidate these goods as they tie up a significant amount of CASH held in your inventory.

The ABC Analysis Report helps you allocate resources wisely, prioritize inventory management tasks, and optimize your product assortment. For example, A-Items will need more frequent replenishment, while C-Items need to get gone!

Cash Margin Report

The Cash Margin Report is an invaluable (maybe the most valuable) addition to a retailer’s inventory management toolkit. Cash Margin as we know it can be defined as the amount of cash remaining from revenue after you have paid for all inventory purchased. I call this your operating cash. Here is an example: If your sales this month are $100,000 and you spent a total of $65,000 on inventory purchases, you will have $35,000 left over to pay ALL of your operating expenses. Is that enough cash OR did you buy more (invest more) than you actually had the ability to sell? Remember, this report doesn’t reflect the cost of goods sold (COGS) but rather the cash you have invested in the entire inventory vs the cost of a single sold item. This report offers several key benefits:

1. Profitability Insights: It reveals which products are contributing the most to your cash margin (operating cash). This information is vital for adjusting your product mix and pricing strategies to grow sales and boost profitability.
2. Cost Control: The Cash Margin Report helps identify categories with high investment allowing you to make informed decisions about needed markdowns to replace the cash spent. 
3. Financial Planning: It aids in financial planning by providing a clear picture of cash flow based on inventory sales. This helps ensure you have the necessary liquidity to meet your business’s financial obligations. The first step in forecasting your cash flow is to understand how your cash is being invested in inventory.

Inventory management is a dynamic and essential aspect of retail operations. By using these three vital inventory reports – Stock to Sales Analysis, ABC Analysis, and Cash Margin Reporting – you’ll gain a deeper understanding of your inventory’s performance, make well-informed decisions, and optimize your stock levels, and drive positive cash back into your bank account where it belongs. I know with these reports in your arsenal, you’ll be well-prepared to keep customers satisfied, reduce overspending on inventory, and drive your retail business to even greater success.

Happy Retailing!
Dan