Retail is an ever-changing industry, and it can be hard to keep up with, especially for owners and managers who have a lot to juggle. Inventory is just one piece of the retail puzzle—but it’s an important one, because it’s where a large chunk of your capital is invested. As you decide what business improvements to focus on for the coming year, give some thought to investing in a retail point of sale (POS) system that includes robust inventory management. Here are five reasons to prioritize retail inventory management.
1. Decrease Retail Shrink
Inventory shrink is when you have excessive inventory that exists in your accounting or inventory records, but no longer exists on your shelves in a physical inventory count. You can’t make money on inventory that has disappeared, so those costs are lost. The 2019 National Retail Security Survey from the National Retail Federation (NRF) reports that shrinkage cost retailers more than $50.6 billion in 2018. There are four main causes of shrinkage:
- Internal theft by employees (which accounts for 45% of losses in the U.S., according to the Global Retail Theft Barometer)
- Shoplifting (36%)
- Administrative error and non-crime loss (13%)
- Vendor/supplier fraud (6%)
The right retail management and POS systems can help combat these losses and decrease the effects retailers feel due to excessive shrink in their operations. For example, simply knowing that you monitor your inventory closely (and in real time) with your POS can deter employee theft.
2. Improve Accuracy
While employee theft and shoplifting account for the majority of shrink, administrative error takes a noteworthy slice as well. Since you invest a large amount of capital in your inventory, you want to keep tight control over it. Before advancements in technology, many retail owners and managers had to rely on time-consuming manual counts of stock and data entry (sometimes in multiple spreadsheets or programs). Humans are fallible, and these processes are rife with opportunities for errors. Retail inventory management systems that integrate with mobile devices and POS systems can greatly improve the accuracy of inventory counts. With these solutions, it’s also easy for employees and even customers to know how many of each item are in stock at your stores.
3. Reduce Inventory Costs
Inventory and labor are the two most expensive parts of running a retail operation. Reducing the cost of inventory (storage costs, for example) can help lower the overall cost of your operation and overhead. An effective retail inventory management system will help you track several key performance indicators (KPIs) related to your inventory, including:
- Average customer spend
- Sell-through rate
- Inventory turnover
All of these figures will help you identify what is selling well and what isn’t, so you can optimize your inventory spending.
4. Reduce Stock Outs and Overstocks
Good inventory management is about balance, because having too little or too much of something will cost you. Customers who come to your retail location—in person or online via eCommerce—are usually looking for specific products. If what they want is out of stock, you’re losing not only that sale but also potentially the customer (and any future revenue they might have generated). Disappointed shoppers have plenty of other options for where to spend their money; and if they share their bad experience with their friends, you may lose even more business.
On the other side of the coin, being stuck with merchandise that isn’t selling can be costly too. Perishable goods that reach their expiration may be a total loss. For nonperishable goods, you’re paying for those items to sit in your warehouse when you could be using the shelf space for more popular and profitable selections. Plus, you may have to slash prices (and reduce profits) to unload it.
The right inventory management system can help you find the right balance and prevent both stock outs and overstocks. It can alert you when it’s time to re-order, so you never run out of your most popular products. And you’ll know which items are moving too slowly, so you can take action before you lose too much profit.
5. Make Better Business Decisions
The information provided by your retail inventory management system will help you find the right product mix and make decisions that make the most business sense. Once you optimize your operations and your inventory system, you can start forecasting more accurately and making better overall choices (such as purchasing) for your business. You’ll increase both employee and customer satisfaction, and have a positive impact on your bottom line.
Of course, one of those key business decisions is choosing your inventory solution and its provider. Retail inventory management can be a challenge; but with the right partner, you can find the tech solution and expert guidance to make it easy.
Paradise POS provides innovative and intuitive solutions for the retail and restaurant industries, backed by dedicated 24/7 IT support. To learn more about how our products and services can help you streamline your operations (including inventory) and grow your business, contact us today.
Ready to upgrade your retail technology but aren’t sure where to start? Download our free Retail Buyer’s Guide here.