How to Increase Sales by Maximizing Your Inventory Investment

by

In general, about 80% of a retailer’s volume is driven by 20% of their inventory. As a result, inventory management can have a huge impact on sales. After all, it’s much harder to make a sale when you run out of what’s selling.

So here are some tips and tools that can help you maximize your inventory and improve business in your store:

Inventory Drill Down

Inventory Drill Down

  1. Break your inventory into categories and determine what categories with a respectable profit margin are contributing the most sales volume for your store.  Is it garden and outdoor decor, accessories, wall art, tabletop, baby, or some other category?
  2. Next, list which product lines you carry in each category and determine the best selling lines.
  3. Drill down another layer to find out what vendors are performing the best for each product line.
  4. Determine which specific items from those vendors are your best sellers.

By drilling down to specifics you can better prioritize your reorders and get the most bang for your buck. When resources are limited, be certain to reinvest in your best sellers first.

But if you want your store to remain unique, you can’t always just buy what’s “safe.” That’s why I recommend that you think of your inventory as a pyramid.

The Inventory Pyramid

The Inventory PyramidAt the base of your pyramid are the volume drivers – the ones that drive 80% of your business. They are the foundation on which you can build out the rest of your inventory, and they’re the destination items that your customers expect to find at your store. Make sure you’re never running low on these products.

In the middle of your pyramid are your volume seekers.  These items represent up and coming categories or products with high volume potential.  They complement your volume drivers and help round out your merchandise assortment.

At the top of your pyramid are your fringe factors – the eye-catching “WOW” factor items that draw customers into your store. Whether it’s a burst of powerful color, unique design, or a large scale item that doubles as a display, this merchandise demands attention and sparks a customer’s curiosity.  Investing 5-10% of your store’s open to buy in “over the top” type items give both you and your customer something to talk about.

It’s important to remember each part of the pyramid when investing your inventory dollars. Keep in mind that while the pyramid and the 80/20 rule are good points of reference, the actual amount you allocate to each will depend greatly on the size of your store, type of your store, your location, and the season for which you’re planning.

More Tools for Buyers:

Most manufacturers have a best seller list. While regional differences should be considered, it’s hard to argue against a vendor’s best selling items. Referencing a best seller list can broaden your perspective and help you make informed decisions.

GiftBeatGiftBeat, a monthly trade publication that tracks trends in the wholesale gift industry, is another great resource. Although you know your customer best, detailed insights and polling data from specialty gift stores across the country can help you stay on top of trends and track the pulse of the industry.

This week we are excited to give away a FREE 12-month subscription to GiftBeat! For a chance to win, simply click here and subscribe to our blog via email (see the “Get Updates Via Email” section on the right side of the Magnet Works Blog home page). The winner will be announced at the end of next week.

What’s the best fringe factor item you ever bought for your store? What are your volume drivers? I’d love to hear from you in the comments!

Tags: , , ,

2 Responses to “How to Increase Sales by Maximizing Your Inventory Investment”

  1. gcbenison Says:

    On a practical note, how do you keep track of your “inventory pyramid”? How often is it updated? What technology is involved (even if that’s just a spreadsheet, or pen and paper?)

    • Tammy Hickel Says:

      Great question!

      While I’m certain there are more sophisticated software programs/models you can use, a simple excel worksheet combined with your sales history can be a great tool to track and assist in analyzing your inventory.

      At the beginning of each season, designate the percentage for each portion of your pyramid on a separate spreadsheet. Divide that spreadsheet by categories or classifications that you designate to drive your business. Every order you write should be logged and deducted from your total assigned Open to Buy for that category. Each week you should be comparing your sales results to your spreadsheets to help you understand what is selling and if you have allocated your percentages correctly.

      If you have more questions, I would welcome the opportunity to discuss this with you further. Please don’t hesitate to contact me at (314) 333-5001.

      Take care!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: