In the minds of many retailers inventory is linked directly to sales: “If I don’t have it, I can’t sell it!” These retailers see sales as the most critical metric, because it’s the measure of the total cash flowing into their businesses.

Just as importantly, however, the cost of that inventory is the largest expense item on every retailer’s income statement. Inventory is expensive, and if not managed carefully, the cost of excess inventory can be the difference between a smaller retailer being very profitable and losing money.

The cost of inventory to a retailer is far greater than simply the invoice cost and freight. There are inventory carrying costs, shrink, damage and obsolescence costs, and even the cost of lost sales due to too much inventory. These costs can add up quickly, almost imperceptibly. But these costs are real, and they do end up on the income statement eroding profits.

Income Statement, shrink, damage and obsolescence costs

While retail inventory carrying costs typically are cialis cheap buried in the expense items below the gross margin line of an income statement, shrink damage and obsolescence costs hit gross margins directly.

Shrink and damage costs are pretty easy to understand. What’s perhaps not as clear is that shrink and damage percentages are almost always greater when there’s too much inventory. It’s much easier for theft to go unnoticed if displays are overstocked to begin with and sightlines are obscured by too much stuff.

And when there’s too much stuff, accidents are much more likely to happen, with merchandise breaking, or getting dinged, or packaging ripping or crushing.

Obsolescence is just a fancy word for markdowns, and while markdowns may also seem like a basic cost of doing business, they are incredibly corrosive to profitability.

When there’s excess inventory, markdowns are always higher, because excess inventory invariably slows the rate of sale of everything, and the longer merchandise goes unsold, the greater the markdowns that will be necessary to move it through.

While many smaller retailers think that they need more inventory to be sure they don’t miss any sales, the reality is that too much inventory almost always leads to lost sales. This is where having too much inventory can actually impact a retailer on the very top line of the Income Statement. Find The right outsource partner

When there’s too much inventory, stores are simply harder to shop, and when stores are harder to shop customers buy less. This can play out in several ways:

When stores are overstocked, it’s simply much harder for customers to find what they came in for, and much more likely they’ll leave without it.
When there’s too much stuff, aisles can become narrower, discouraging customers from exploring deeper into the store.

When displays are overstuffed, customers become afraid to touch, afraid of breaking something on a shelf simply packed to tightly, or starting an avalanche on a display piled too high.

When there’s too much assortment, too many things to choose from, customers can become paralyzed. If the retailer hasn’t been able to focus the assortment for the customer, how can the customer know with confidence that they’ll be happy with what they purchase?

When there’s too much merchandise, customers can simply become overwhelmed by it all! Invariably, when stores bring their Brand Viagra inventories in line, clean up their assortments and make it easier for the customers to shop and find what they’re looking for, sales go up.

And in some cases, sales don’t just go up a little bit; they go up a whole lot. The math is irrefutable. Inventory costs money and too much inventory costs a lot more money. The cost of slower turning inventory is much greater than the cost of faster turning inventory. And the costs are felt throughout the business, from lost sales, to reduced margins, to increased expenses.

Those smaller retailers that actively manage their inventories, striking the right balance between having what their customer want and having too much, invariably are more profitable than those that don’t.

Author Bio: Tom Mann

Business Operations Director who creates incredible overhead savings in: property leasing, employee benefits expense, equipment, office supplies, vendor contracts, phone systems/cell phones, general utilities, fixtures, facilities, fleet vehicle expenses, insurance policies, site cleaning – EVS cost, parking, landscaping/grounds.