Play to Win with Smarter Inventory Management
An Interview with Dick Abbott
Pencheff: Managing inventory is key to a retailer’s success. In your opinion, is there a retailer that does this well?
Abbott: In my mind, no one does it better than Nordstrom.
Pencheff: How does Nordstrom compare to the average retail jeweler?
Abbott: Let me use this analogy. If retailing was a sport, the scoreboard would read Nordstrom 330; Average Independent Jeweler 65. Every sports fan would get an idea, based on the score, of how competitive the game was. In this game we are measuring GMROI (gross margin return on inventory). The higher the number the better. Nordstrom’s GMROI of 330, versus 65 for the independent jeweler, clearly indicates that while they may be playing the same game, they are not in the same league. That’s made apparent by the score. Every retailer should be familiar with GMROI for keeping score.
Pencheff: What are some things Nordstrom does that are so different from the independent retailer?
Abbott: Nordstrom produces $5,000,000,000 in gross profit from an average inventory investment of $1,500,000,000. The average jeweler produces about $650,000 from a $1,000,000 investment. Why the difference? Nordstrom knows what and how much to buy. They have it down to a science and you’ll never see racks of old merchandise.
Pencheff: There is certainly a huge disparity between Nordstrom and the local jeweler. So, what do they understand that the jeweler does not?
Abbott: Nordstrom understands the tenets of retail, product mix, stock levels and display that are key to this discussion; their inventory is always relevant. The average jeweler, on the other hand, thinks it’s all right to put years old stock on display every morning. Even though it’s been rejected by customers for that time. They don’t realize it makes it even harder for the customer to find their more saleable product. Far too few jewelers do a good job of managing inventory.
Pencheff: Nordstrom has available options for aged inventory like Nordstrom Rack. So, are you saying the primary store itself isn’t displaying aged inventory?
Abbott: I am! Good merchants don’t let merchandise age. New merchandise performs too well to have old products taking up valuable space. The average jeweler’s inventory consists of 60% old inventory with consequences far greater than the obvious misuse of capital. Jewelers need to be better merchants to survive in an increasingly competitive retail environment.
Pencheff: What should a retailer be paying attention to?
Abbott: The jeweler should pay attention to aging products and systematically get rid of them. The jeweler should keep fast selling items in stock at all times and watch inventory levels very closely. No retailer needs any more stock than just enough. Just enough is just perfect as not enough will result in lost sales and too much can create cash flow problems. Retailers need to know what enough is and GMROI is a great aid in determining that.
Pencheff: Are you saying a retail jeweler can achieve the same GMROI as a Nordstrom?
Abbott: No, but I wish they could! Nordstrom has a more diverse inventory than the fairly narrow one a jeweler has. Nordstrom-like GMROI’s are not likely for retail jewelers but it should be possible for the average jeweler to achieve a GMROI of 125 by taking a page from the retail giant’s book.
Pencheff: If you could give any final advice, what would that be?
Abbott: Get your inventory in order. It is the cornerstone of retail success. Great staff and great advertising are both compromised by a poorly composed inventory selection. Get rid of old merchandise, reorder fast sellers and watch inventory levels in all departments.
Dick Abbott is President and Founder of Abbott Jewelry Systems and creator of The Edge retail jewelry store software system. We caught up with him to ask for his insights into successful inventory management.
Patricia Pencheff is Communications Director for Fruchtman Marketing.