Recently I was fishing with a friend who is CFO of a significant ski industry company. He mentioned he’d been looking at their retail operations wondering if it’s better to make more margin or have higher turnover. After significant study, he concluded that turnover wins every time. Then our guide, who owns one of the leading outfitters in the region, chimed in and agreed that turnover is the key to success.
Many companies focus on improving margin, but if inventory sits on the shelf, what difference does margin make? The key is to move the product, even at a lower margin, achieving a turnover that produces revenue. Considering that holding inventory can cost 2 to 3% per month (or more if your industry is seasonal) and lack of movement means holding things until next season, turnover is the obvious choice. Clearly selling at a loss isn’t productive, but holding inventory to squeeze out a few more points of margin is a recipe for failure.
Are you turning your inventory quickly? If you aren’t achieving six to eight turns or more, call me.
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