The Hidden Power of Stockturn
Driving profits beyond the usual metrics
Here we're diving into a topic that doesn't get nearly enough attention in our industry: stock turn. Now, I know what you're thinking – "Stock turn? Boring!” Well, buckle up, because I'm about to show you why stock turn is the unsung hero of retail profitability and comes with superpowers.
We all know the 3 components to driving sales: traffic/ footfall, average transaction value, and conversion rates. Don't get me wrong, these are important metrics. But while they may drive sales, stock turn can really drive profit. In a world where margin is not always that easy to influence, it’s even more important to use the tools we can control.
So, what exactly is stock turn?
For those who need a quick refresher, stock turn (also known as inventory turnover, or weeks cover is often used) is the number of times your inventory is sold and replaced over a period of time, usually a year. It's calculated by dividing your cost of goods sold by your average stock value.
Now, let's talk about why stock turn is so crucial and some of its benefits that often fly under the radar.
Cash Flow is King
We've all heard the saying "cash is king," right? Well, in retail, cash flow is the lifeblood of your business. Here's where stock turn comes into play. The faster you turn your inventory, the more quickly you free up cash that was tied up in stock. This improved cash flow allows you to:
Invest in new opportunities
Negotiate better terms with suppliers
Weather unexpected financial storms
Think about it – would you rather have $10,000 worth of slow-moving inventory sitting on your shelves, or $10,000 in your bank account ready to seize the next big opportunity?
The Compound Effect on Profitability
Here's something interesting: increasing your stock turn can have a compound effect on your profitability. Let's say you have two products, both selling for $100 with a 50% gross margin. Product A turns over twice a year, while Product B turns over six times a year.
Product A: $100 profit per year
Product B: $300 profit per year
That's right – by simply turning your inventory faster, you've tripled your profit without increasing your prices or margins. It's like magic, except it's all based on solid inventory management.
Reduced Carrying Costs
Every item in you hold in stock comes with hidden costs – storage, insurance, handling, and the risk of obsolescence or damage. These carrying costs can quietly eat into your profits at speed. By increasing your stock turn, you naturally reduce these costs. Less time in storage means lower expenses and less risk of your stock becoming outdated or damaged.
Improved Product Quality and Customer Satisfaction
Here's a benefit that might surprise you – higher stock turn can actually lead to better product quality and increased customer satisfaction. How? Well, when you're turning your inventory quickly, you're constantly bringing in fresh stock. This means:
Less chance of selling outdated or damaged goods
Ability to quickly adapt to changing customer preferences
Opportunity to frequently update your product range and buy back into bestselllers
Your customers will appreciate always having access to the latest and greatest products, leading to higher satisfaction and loyalty.
Better Supplier Relationships
A high stock turn can actually improve your relationships with suppliers. When you're consistently moving product, you become a more valuable customer to your suppliers. This can lead to:
Better pricing and terms
Priority treatment during supply shortages
Stronger partnerships and collaborations
Remember, your suppliers want to work with retailers who can move their products efficiently. Become that retailer, and you'll reap the benefits.
Enhanced Market Responsiveness
In today's fast-paced retail environment, being able to quickly respond to market trends is crucial. A high stock turn enables you to:
Quickly test new products without committing to large quantities
Easily pivot when consumer preferences change
Stay ahead of competitors by always offering the latest trends
It's like being a retail ninja – quick, agile, and always ready to strike when opportunity knocks.
Reduced Markdown Risk
We've all been there – marking down slow-moving stock just to get it out the door. It's painful, and it eats into your profits. But here's the thing: when you focus on increasing your stock turn, you naturally reduce your markdown risk. You're selling products while they're still in demand, at full price, before they become stale and need discounting.
Improved Space Utilisation
For brick-and-mortar retailers, space is at a premium. Every square foot needs to earn its keep. A higher stock turn means you can:
Showcase a wider variety of products in the same space
Reduce backroom storage needs
Create a more dynamic and frequently changing store environment
For e-commerce retailers, this translates to more efficient warehouse usage and potentially lower storage costs.
Better Decision Making
When you're focused on stock turn, you naturally become more attuned to which products are performing well and which aren't. This leads to:
More informed purchasing decisions
Better category management
Improved overall inventory strategy
It's like having a constant pulse on your business, allowing you to make data-driven decisions that boost your bottom line.
Increased Team Efficiency
Last but not least, a focus on stock turn can actually improve your team's efficiency. When inventory moves quickly, your staff spends less time:
Managing and reorganizing stock
Dealing with outdated or damaged goods
Handling markdowns and clearance sales
Instead, they can focus on more value-adding activities like customer service, merchandising, and sales – all of which contribute to a healthier bottom line.
So, there you have it – ten often-overlooked benefits of focusing on stock turn. While traffic, average transaction value, and conversion rates are undoubtedly important, don't forget about the power of stock turn to drive your profits.
Remember, in retail and e-commerce, it's not just about how much you sell, but how efficiently you sell it. By keeping a close eye on your stock turn and implementing strategies to improve it, you're setting yourself up for long-term success and profitability.
