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The Five Things You May Not Realize About Stock Turn

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Knowing your turn ratio is one thing, but understanding how to use it is another.

Stock turn: that elusive nirvana between having too much and not quite having enough products to drive your sales. Getting the balance right can be challenging because it is always a moving target.

You may have a good grasp of stock turn and how to calculate it, but here are a few significant facts that may affect how you look at it.

1. Stock turn is only one part of the return on investment equation. The other is margin. You can afford to have your inventory sit around a while if you have the profitability to handle it. The lower the margin on an item, the faster you have to turn it over to achieve the same profit.

2. Freight needs to be part of the equation. All too often, I see jewelers who don’t add freight in as part of the cost of the item. The problem with leaving it out is that the faster your stock turn, the more it will cost you as each item gets shipped. Ignoring it will distort the profit on your product and give you an artificially higher margin than you really have.

3. Fast stock turn can be as bad as slow. If your inventory is turning over too quickly, don’t celebrate — it is possibly a sign that demand is beginning to exceed supply and you will be losing sales as a result of this. 

4. Accurate stock turn can only be measured over time. Take a snapshot of a week or a month and the figures can deceive you. Stock turn is calculated using your average inventory holding between two periods. If those periods are seasonal, such as December, the numbers can deceive if you don’t take this into account.

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5. Stock turn can predict the future as well as show the past. Too often, I see retailers who analyze their stock turn but don’t use it as a basis of prediction. History does repeat, and if you find trends developing around certain areas, it helps to use them to plan future inventory levels across that area.

An awareness of stock turn is one thing, but knowing how to manage it and use the information to drive your business is the secret to getting the most value from this key financial variable.


David Brown is president of the Edge Retail Academy. To learn how to complete a break-even analysis, contact inquiries@edgeretailacademy.com or (877) 569-8657.

This article originally appeared in the April 2017 edition of INSTORE.

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She Wanted to Spend More Time with Her Kids. She Called Wilkerson.

Your children are precious. More precious than gold? Absolutely! Just ask Lesley Ann Davis, owner of Lesley Ann Jewels, an independent jewelry store that — until the end of 2023 — had quite a following in Houston, Texas. To spend more time with her four sons, all in high school, she decided to close her store. Luckily, she was familiar with Wilkerson and called them as soon as she knew she wanted to move on to bigger, better and more family-focused things. Was she happy with her decision? Yes, she was. Says Davis, “Any owner looking to make that life change, looking to retire, looking to close, looking for a pause in their career, I would recommend Wilkerson. Hands down!”

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David Brown

The Five Things You May Not Realize About Stock Turn

mm

Published

on

Knowing your turn ratio is one thing, but understanding how to use it is another.

Stock turn: that elusive nirvana between having too much and not quite having enough products to drive your sales. Getting the balance right can be challenging because it is always a moving target.

You may have a good grasp of stock turn and how to calculate it, but here are a few significant facts that may affect how you look at it.

1. Stock turn is only one part of the return on investment equation. The other is margin. You can afford to have your inventory sit around a while if you have the profitability to handle it. The lower the margin on an item, the faster you have to turn it over to achieve the same profit.

2. Freight needs to be part of the equation. All too often, I see jewelers who don’t add freight in as part of the cost of the item. The problem with leaving it out is that the faster your stock turn, the more it will cost you as each item gets shipped. Ignoring it will distort the profit on your product and give you an artificially higher margin than you really have.

3. Fast stock turn can be as bad as slow. If your inventory is turning over too quickly, don’t celebrate — it is possibly a sign that demand is beginning to exceed supply and you will be losing sales as a result of this. 

Advertisement

4. Accurate stock turn can only be measured over time. Take a snapshot of a week or a month and the figures can deceive you. Stock turn is calculated using your average inventory holding between two periods. If those periods are seasonal, such as December, the numbers can deceive if you don’t take this into account.

5. Stock turn can predict the future as well as show the past. Too often, I see retailers who analyze their stock turn but don’t use it as a basis of prediction. History does repeat, and if you find trends developing around certain areas, it helps to use them to plan future inventory levels across that area.

An awareness of stock turn is one thing, but knowing how to manage it and use the information to drive your business is the secret to getting the most value from this key financial variable.


David Brown is president of the Edge Retail Academy. To learn how to complete a break-even analysis, contact inquiries@edgeretailacademy.com or (877) 569-8657.

This article originally appeared in the April 2017 edition of INSTORE.

Advertisement

Advertisement

SPONSORED VIDEO

She Wanted to Spend More Time with Her Kids. She Called Wilkerson.

Your children are precious. More precious than gold? Absolutely! Just ask Lesley Ann Davis, owner of Lesley Ann Jewels, an independent jewelry store that — until the end of 2023 — had quite a following in Houston, Texas. To spend more time with her four sons, all in high school, she decided to close her store. Luckily, she was familiar with Wilkerson and called them as soon as she knew she wanted to move on to bigger, better and more family-focused things. Was she happy with her decision? Yes, she was. Says Davis, “Any owner looking to make that life change, looking to retire, looking to close, looking for a pause in their career, I would recommend Wilkerson. Hands down!”

Promoted Headlines

Most Popular