Has technology reinvented inventory control?

by Tasha Wallis With customers making purchases in stores, online for home delivery, via mobile and even online for store pick-up later in the day, large stores are scrambling to reinvent their inventory control and to assure that sales channels are integrated. To cite just one example, when inventory control is out of control, companies can find themselves discounting through one sales channel while sold out in another.

Inventory management and the use of technology are also evolving in Vermont stores. Lara Allen, who has successfully run Ecco on Church Street for twenty years, says that, “the biggest mistake you can make in retail is to buy more inventory than you need.” She’s right. Really right. According to RMSA Retail Solutions, a retail consulting firm, the top reason that retailers go out of business is buying more inventory than they can pay for. Even for those that survive, overbuying is costly. RMSA also estimates that American merchants are forced to make about $200 billion of markdowns a year. Many of these are directly related to overbuying of product.

Vermont‘s economy is small but merchants here face the same challenges as their national counterparts, including overbuying. And with retail’s very small profit margins, mismanaging inventory, which drives cash flow, can make or break a business. According to Barry Goodman of RMSA, even being ten percent overbought can ruin a store’s profit potential and result in unnecessary markdowns.

The US economy took a dive in the fall of 2008, the worst possible time for retailers anticipating the holiday season. Many of these businesses were left with large inventories that they tried to sell with massive discounting in the months after Christmas. Even outstanding inventory control can’t necessarily protect retailers from shocks to the economy, but the economic downturn was certainly a wakeup call for small retailers.

According to Ron Redmond, executive director of Burlington’s Church Street Marketplace, after the shock of the recession, many local retailers now have tighter controls. Evolving technology has been a significant source of help, providing the ability to compile real-time data on national, local and in-store sales.

Kate Carpenter has worked in retail since she was six, and now owns the very successful Stowe Kitchen Bath and Linens. She uses data on national sales, local sales and in-store sales to plan her inventory. However, she points out that accumulating data, though important, by itself isn’t enough. Understanding information is key to success. “You need a tool that gives you enough information to use your instinct to make informed buying decisions.”

Carpenter is correct in stating that running by the numbers alone isn’t enough. A store owner still has to have an eye for the skinny jeans, or the skimpy tops, or whatever the next big thing might be. Like Carpenter, Lara Allen also uses a very detailed software program for planning her inventory. She can track jeans, t-shirts and dresses and buy according to the plan laid out by the computer. But when she spots a trend that she can trust, she will modify the plan.

Both Carpenter and Allen stress that their handle on inventory control and detailed analysis of sales give them the baseline data that allows them to exercise judgment and spot trends. Kate Carpenter of Stowe Kitchen, Bath and Linens works with 752 different suppliers and checks her inventory daily.

At Onion River Sports in Montpelier, Andrew Brewer says a closer look at socks more than doubled sales and halved the number of socks in the warehouse. As in the stock market, large amounts of historical data are part of the analysis that informs judgment about the future. Brewer points out that, “Inventory held by retailers is considered an asset but it is an asset that costs money over time.” Inventory that doesn’t move takes up space from products that could be making money. Cash flow is crucial to running retail business and inventory freezes it in place.”

As Brewer notes, a key decision for retailers is knowing what to do with inventory that isn’t moving. “The number one thing I’ve learned is when to take the discount. After all, twenty percent now is better than fifty percent in the spring.” This was a common theme from several different retailers.

By enabling even the smallest retailers to create web sites, the Internet has brought still more challenges. Large stores with websites and multiple locations face challenges in weaving all those together. For their parts, small stores are suddenly faced with integrating the website with the store’s inventory. If the website says there is one of a particular item left in inventory, there had better be one left. Andrew Brewer says that “sometimes someone managing orders from the website will dart across the street just to make sure an item is really in the warehouse. You need to know the item is there if you’re going to make the sale.”

One oft-cited problem in tracking product is giving too many employees access to the inventory control system that make it easier for errors small and large to creep in. Most retailers find that strict rules on who can get into the system and enter or change data prevent such glitches.

Real-time data can also allow a retailer to make constant and small adjustments in retail. A break in size availability (for example, if all the larges are sold out) can dramatically affect the sale of a clothing item. Constant information allows many retailers to now make a series of small buys to fill in inventory without filling up the warehouse.

So what’s the bottom line in 21st century inventory management? One grim statistic signals how important in can be. Kate Carpenter estimates that ninety percent of retailers that have gone out of business in Vermont in the last three years had trouble moving their inventory. It’s easy to be left behind in the age of light-speed communications and new practices, but the penalty can be severe.

The phrase, “think globally act locally” is popular in Vermont. Data analysis and information management help retailers think nationally, regionally, locally, categorically and even count their socks. Retailers who haven’t explored the new resources neglect them at their peril. If someone invents an app for profit, it will have inventory control built in. 

Tasha Wallis is the Executive Director of the Vermont Retail Association.