Armed with the information you’ve calculated, consider the following:
1) Decide what your business is going to look like in the next 12 months. For example, consider which categories you are going to build and which ones you are going to reduce (if any).
2) Determine what GMROI you expect for each category. Remember, this is a combination of your markup and stock turn in each category.
3) Using these figures, calculate your optimum inventory level in each category. Do one at a time and start with the categories that can make the greatest amount of difference in the shortest amount of time.
4) If you are already overstocked in a category, decide whether you will increase your sales budget to match your inventory or reduce your inventory.
5) If you are understocked in a category, look at other categories that may be overstocked and work out how you can redeploy the investment where it’s needed.
6) Before rushing out and buying blindly, think carefully about the price points and margin you want to achieve, the image you want to create, and the vendors you want to partner.
Although this may seem to require a lot more science and discipline than you may have used to this point, if you are truly serious about the future profitability of your business, there is no other way to do it. Your business, your family, and potentially your retirement aspirations are at stake.
Consider this, if you were heavily invested in the stock market and one company’s stock was giving you a 30 per cent return on your investment compared to other companies’ stocks only achieving 10 per cent and assuming all other risk factors were the same, how long would you leave it before repositioning your portfolio? Your inventory is your investment portfolio.
David Brown is president of the Edge Retail Academy, a retail jewellery business consulting company that examines all the pieces of your business puzzle and creates a customized plan of strategies to grow your business. He can be reached at (877) 569-8657 or inquiries@edgeretailacademy.com.
