Five Minute Friday: Your Inventory Is Cash—Here’s How to Turn It Faster

Being a retailer ain't easy. That's why we at the Boutique Hub are going to be coming to you with a new series called Know youw Numbers. We're going to get the facts on what is the most important to drive profit, drive cash in your business, and really have you feel in control over your future. Numbers are black and white. It's the one thing we record every day. And we're going to teach you how to make the most of tracking your KPIs and metrics. Let's jump in now. Let's turn our attention to turn. You see what I did there? Okay, so turn is a really important metric in retail. And some retailers are really familiar with the concept. Some, it's going to be a bit newer to them. So I'm going to try to break it down in simple terms. It can get a little tricky, so try to stay with me. And of course, as always, we at the Boutique Hub are here to help answer any questions. So the first thing that you need to think about when you think about turn is really own that retail is a cash business. We like to talk about margin a lot. We like to talk about profit a lot. And at the end of the day, the profit on a piece of paper that your accountant tells you you have is not cash in the bank. So you could have a great profit margin and you could have no cash in your bank account. Being a great retailer and business owner depends on your cash flow. So. So turn is going to be a great indicator on how you're performing and how your cash flow is potentially showing productivity. Or is it getting tied up in inventory? We often call ourselves buyers, but really, you're an investor, you're investing in merchandise, and you want to see the quickest ROI on those goods. You want to see a return for those investments. So turn measures how efficiently you're managing your inventory and your ability to generate cash. Let's think about it like this. A turn simply is how many times you sell through your inventory in a given period, most usually in a given year, how many times you sell through your inventory. So here's a fun way of thinking about it. What retailer will have the quickest turn? Well, it's a supermarket or a grocery store. They're selling fresh produce, so they have to sell through their inventory really quickly. They have to turn it pretty rapidly. So what happens if they don't turn it quick enough? Well, it's going to spoil. So as a fashion retailer, as a home and gift store, as a pet store, you have to think about your inventory as having an expiration date. At some point it will will spoil whether the trend's just done, your customer doesn't want it anymore, it's not seasonally appropriate. You will have an expiration date. And if you don't turn it by that expiration date, that's your cash getting too tied up and it's going to impact your bank account. Now let's look at the formula for turn. So the formula is pretty simple. It's your total sales in the time period by dollar, right? What was the dollar amount of sales you did divided by your average invent retail. So in the course of a year, how much sales did you do divided by what was the average amount of inventory you held in your business? So let's say you did $500,000 in sales. You held roughly $125,000 worth of merchandise over the course of the year. You turned and sold through that inventory four times. Your turn was four. That's your turn rate. Now I'm going to try to make this a little bit more approachable. So women's fashion stores typically turn five to six times a year. If you're in that range, you're doing pretty good. So a women's fast fashion business at any point on their floor will usually have somewhere between eight to ten weeks of supply. 52 weeks divided by five, divided by six. Six. That's the eight to ten weeks of supply. So make it really simple. I want to make it really simple, I promise. I know this is getting complicated, but to make it really simple, if you are a women's fast fashion store, after eight weeks, you should be starting to worry about your merchandise spoiling. After 10 weeks, you really have to think the merchandise has been there for too long. Your merchandise is cash on your floor. For every dress you have on a hanger, that is your cash hanging on that hanger. For every accessories you have on a table, that is cash. We want to think about moving the cash through the business. So if you're a women's contemporary or luxury store, you turn about three and a half to four and a half times a year. You have a little bit more time before that merchandise spoils. And home and gift as well, you have a little more time. But everyone, every retailer every has the point where, hey, this merchandise is no longer fresh. It's starting to spoil. If I don't turn it, if I don't sell through it, it's going to become dead. Inventory and cash clogged up in my business. So the quicker you Turn your inventory, the more dollars you have in your pocket. Here are my pro tips for turn right. So here's how you're actually going to apply this in the day to day in your business. So the first thing is don't be afraid to mark down age merchandise. I hear this so much from retailers, I can't take a markdown. It's going to make my store look like a discount store that I'm going out of business so that I'm in clearance. I don't want to train my customer to only buy sale goods. Right. But what we don't want is age spoiled merchandise sitting on your floor clogging up your cash flow. So if, if something has gone out of that window that we just talked about, if you're a women's fast fashion store and you've had something sitting on your floor for 16 weeks for now 3, 4 months, it's starting to spoil. Take the markdown, get your cash back. That's what's going to keep the cash flowing and keep your merchandise turning. Okay? Keep track of your on hand inventory. Now I would strongly suggest that month to month, you know where you're at in terms of on hand inventory. That's where and we talked about this in are knowing your numbers, metrics, that is where you are going to look in your month end inventory snapshot, your month end inventory value and your inventory reports to really keep track of, well, how much money do I have invested in inventory right now? It's so important. It should be just as important to you as how much money is in your bank account. Because the amount of inventory you have on hand is the amount of dollars you have tied up in your business. So super important month to month, know that number, keep track of it. It's going to really help you start thinking in terms of cash dollars. Now all turn. All categories are not created equal when it comes to turn. So there are categories that turn quicker than others. So you may want to invest in categories that sell quickly. Okay. And we could break down some examples. Whether you're a pet store, whether you're a home and gift store, whether you're a women's retailer, which categories turn slower, which categories turn and you should be able to see it in your own data. And then finally use all marketing tools to sell slow movers. If you don't want to take a markdown, well, you better work your butt off to sell what isn't selling. Right? So if we have certain vendors, certain product categories, certain items that just aren't selling, let's get it on Insta, let's get it in an email campaign, let's move it to the front of the store, let's highlight it on our homepage, let's do a everything we can to sell it and that will help you with your turn. So we want to actually identify slow sellers and give them attention and love. And hey, sometimes you're just going to have some bad buys and then we take the markdown and we walk away from it. But until then, we want to use all the tools in our toolbox. So I hope this helps you think about your turn and your cash flow and how you can be a successful retailer with money in your bank.

That's it for five Minute Friday, you guys. I hope you found some quick, actionable steps you can put into play in your business right away. As always, if you're not yet a member of the Boutique Hub, I would love to personally invite you to join us. It's where all of the daily conversations happen. The up to date what is working now in the industry conversations, the latest trainings, trend reports, discounts, resources and of course access to thousands of wholesale brands that you also know and love. So please take a minute, follow the link in the show notes and we would love to invite you to join us inside of the Boutique Hub.