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It’s very common for retailers to have their fiscal year end be January 31. It’s after the Holiday season, and inventories are generally low.
Likewise, it’s also very common that retailers are taking (or having a service take) physical inventory this weekend or soon thereafter.
As we all know, counting inventory by hand is tedious, boring, expensive and, frankly, no fun at all. However, whether by hand, by barcode, by any method of technology, the inventory count matters, and it matters a lot!
Let’s review the Big Picture for this business doing $700,000 in revenue, with $290,000 in total operating expenses.
So you can see that the impact of the ending inventory (physically counted) is vitally important.
For instance, in the illustration above, perhaps the bored inventory-counting people simply neglected to count $10,000 worth of inventory. That’s understandable, but disastrous!
In fact, if they had neglected to include $15,000 of inventory @cost, the business would have shown a $5,000 loss.
Whereas had all the inventory been counted accurately, the owner could rejoice with $10,000 in profit.
This is always a busy weekend for millions of retailers. Let’s hope most of them count every last little widget.
How about in your store?
This is the time of year when most retailers are scheduled to take their annual physical inventory count. Along with that comes the interruption of daily lives, very serious attitudes of bookkeepers and accountants, and, of course, extra expenses. Oh yes, those! Typically, preparing for and taking the item-by-item count involves a lot of emphasis on "Make sure to count everything. We don't want to miss anything!" This often-loud focus is true whether the counting is done manually, by scanning, or any other means. "We must count it all!" Okay, but why? Why is it so darn important to count every last fish hook or candy bar or tube of lipstick?!
It helps to know why.
Managing inventory – arguably the #1 responsibility of a retailer – has been beset by a host of new and sometimes daunting challenges since 2020. The last few months of 2022 only made matters worse. As supply chain issues seemed to subside, foreboding talk of a recession dominated, dampening customer spending. Many retailers are feeling a bit over-inventoried as a result. Similar to that sense of having a few added pounds after the holidays. In other words, a situation that is crying out for perspective. And The ROI has you covered on that!
The savvy retailers know that now is the time to be putting the finishing touches on being ready for – wait for it – December 26!
This unique time period between December 26 and January 10th is a tremendous make-or-break opportunity. Indeed, many retailers find they net more from this time than any earlier stretch of 15 days!
First, the many opportunities to reduce expenses "back to normal." Less advertising cost. Less staff. Fewer hours.
Second, those people using Gift Certificates, making returns or exchanges are potential new customers. Likely, many of them haven't been in your store before. A great opportunity!
And third, the opportunity to clear out seasonal merchandise, generate cash, and move on to the New Year.
We're sure you'll agree. Misinformation can be very harmful. Retailers surely don't need more harmful anythings!
Just last week, we came across the proverbial straw that broke the camel's back. It was a post on the Intuit Quickbooks site*, titled "Inventory Turnover Ratio." And the explanatory article was accompanied by an "Inventory Turnover Calculator."
What do we take exception to? The misleading and/or incorrect information it provides. For example, their "Inventory turnover calculator" requires two entries.
We must take exception. "Total costs involved in selling your products" is NOT the same as Cost of Goods Sold. Nor do they specify that it should be for a 12-month period of time.
We must take exception. What they surely meant to say is inventory @cost.
Each year at this time, our thoughts turn to turkeys. No, not the ones that will adorn many dining tables on Thursday. But the "turkeys" lurking amidst your inventory. You know; non-selling, distressed, slow-moving, old, unappealing leftovers among your merchandise. But this year, frankly, our worries extend beyond the turkeys. Here are some of the reasons why.
As a result, in this environment, consumers are scaling back their discretionary purchases, and/or choosing to spend on travel, dining out, or other experiences versus retail merchandise. Not an upbeat prospect for retailers, is it?
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