Retail is fun. Mostly. Retailers say they love working with customers, making great sales and interacting with customers. But not all of retail is fun. One of the hardest, and yet most important tasks that retailers face, is inventory control. A great deal of time, effort and expense is dedicated to it — and even with all that, it seems to be an ongoing struggle.
With The Running Event 2025 – and all of its new products, buying and merchandising opportunities – right around the corner in San Antonio next month, now is a good time to see if we can make it less … awful.
Why Should I Care?
You’re making sales, you’re having fun and your financial stress is not so bad, so why is this so important? You might be thinking, “Why can’t I just keep doing what I’m doing?” Well, you could, but you’d be leaving a lot of money on the table.
Inventory is your biggest asset — and your biggest expense. You spend more money on inventory than anything else. More than rent, payroll, technology or marketing.
Manicuring and curating your assortment is the most important job a run retailer has. Having the right inventory, in the right place, at the right time, is the best way to guarantee your profits in the short term. It also guarantees your success in the long term, as customers will believe in your store and come back, again and again.
One of my first mentors in this business once said, “Stores have no better marketing than having the right inventory.” It’s true. We can never lose sight of that.
That means that we need to know what inventory we have, how long it’s been there and what we’re planning to do to sell it. To do that, we must have an accurate, dependable inventory that we can work with, entice our customers with and ensure our future.
If your inventory is overstated, that means that you might think you have goods to sell, when you really don’t. If your inventory is understated, then the sales you think you can make, you can’t because the goods aren’t there. Further, both of these situations can occur simultaneously, across several departments and either one can cost you both sales and profits.
That’s why you should care. Now, let’s figure out why it happens, and how to fix it.
Where Does It Go Wrong?
There are lots of places where the inventory control gets out of whack. When retailers complain that they don’t have faith in their current inventory, I always suggest we start at the beginning of the “inventory cycle.” Let’s walk through that together, and look for places where the inventory goes wrong.
• Setups: One of the biggest causes of incorrect inventory is that the POS system was not set up correctly. For starters, I would review your Department/Class/Subclass structure. If there are not clear lines of delineation in your DCS structure, it needs to be revised. You should never look at an item and think that it could go in more than one DCS.
If you have that situation, change your DCS structure so that there is no muddy water there.
The same is true for the individual fields in your POS system. Each one should have a specific purpose and that line should not be crossed. Perhaps one description field is for the vendor’s style number and another description field is for the product’s description itself. Keep to those rules, so there are no surprises.
Lastly, make sure you are consistent with how you enter information in all your data fields.
For example, let’s talk about the color black. I’ve seen it abbreviated many ways – BLK, BLC, BLA, BL, BLAC, BLCK, BLAK, etc. If you are not consistent in how you enter it, you can’t search for it or report on it and you could have duplicate entries. It’s often best to use the first few letters of the color or create a table of entries and stick to that table.
• Purchasing/Receiving: When entering POs into your system, do you look before adding new items? Duplication of existing items is a big cause of inventories going wrong.
Also, do you have enough information to write the PO? Do you know everything you need to know to properly add the items to your system?
I’m not just talking about descriptive information, I’m also talking about having the correct cost and retail price. Some retailers have told me that they don’t enter purchase orders because they don’t have that data until the goods arrive. Nonsense. The vendors have it, and they give it to the people who ask for it— so be one of those people.
And, in this day of e-commerce sales, you should also get the UPC codes from your vendor.
Lastly, I see a lot of errors when doing returns to vendor. Getting the RTV from the vendor is important, but also make sure that you enter it properly so that the goods are out of your system.
• Selling: This is probably the biggest cause of inventory errors. We’ve all gotten accustomed to scanning barcodes, but sometimes they don’t work. And when they don’t, cashiers tend to improvise.
Make sure your staff knows how to look up items quickly, so that if a barcode isn’t working, or if the tag is missing, they ring up the right item.
I’ve seen lots of places where cashiers ring up another item that isn’t the item being sold, but because the price is correct, they feel it’s “close enough.” It’s not – this messes up your available inventory by size, creates incorrect sales and inventory reports. So while the customer leaves happy, the store suffers.
I’ve also seen instances where the cashier accidentally scans the UPC code in either the quantity or the price field and to fix it they add a discount. This messes up the inventory and creates incorrect markdown reporting (which is crucial to properly evaluate vendor performance, store performance, and buyers’ performance too!).
Have your POS vendor change the sequence of the fields so this is unlikely to happen and have your cashiers tell you as soon as it does happen, so the proper corrections to these mistakes can be made.
Lastly, many systems have “junk” or “jackpot” items, which are generic items that are typically created when you first go on a system to ring up items that have not been entered yet. Lots of times these generic items are continually used by cashiers when they don’t have a ticket, or sometimes they are just too lazy and prefer to use that item.
Every time that happens, you create an inaccurate inventory. I would either remove the generic item or run reports on it to figure out why it’s happening (more on that in the section below).
• Other Inventory Movements: If you are a multi-store operation, then you know that inter-store transfers are difficult things to manage. Even gigantic operations have this issue.
Every time a store transfer happens, the amount transferred from the source location should match the amount received at the destination location. POS systems have lots of ways to manage this and it’s worth spending time learning them.
This is also a big area of theft, so protect yourself and your inventory by establishing excellent processes and policies to manage this.
The other place in this category that causes problems are other causes for inventories to be depleted. If items are taken out of stock for any reason (demo, the owner took one, gave one to a charity, etc.), this should all be documented as an inventory adjustment (do not do this as a zero dollar sale, as that messes up your margins and creates incorrect quantity sales too).
While this seems like a small percentage of the cause, it grows faster than you think.
Doing It Right?
Even if you get very good at enforcing all the things above, things could still go wrong. You can’t be everywhere at all times, so you need to do some things to make sure that everything is being done properly by you and your staff.
From my earliest days of installing POS systems I learned that if you do not have someone in charge of the system itself, and its inventory, things go off the rails fast. Someone in your organization needs to be charged with the role of “System Administrator” and that person’s job is to ensure the accuracy of the inventory. They should be very well trained in your POS system, and they should watch this like a hawk.
• Reports: Every area of operation has some set of reports that can be run to ensure the operations are happening correctly. That said, I find that most retailers just run selling reports and don’t run reports that look at other areas.
I’m a big fan of running receiving reports (did the goods come in properly and was it what I expected?), on hand reports (especially negative inventory reports. I like to run those and make the staff count the negatives. Since they don’t like doing it, the more you make them do it, the sooner they’ll get serious about ensuring the inventory is right.) and inventory adjustment/transfer reports.
I also want to find all the places where we rung up sales using those generic or jackpot items and nail down why those lines are being used. Investigate all the oddities and you’ll soon identify and rectify the causes.
• Physical Inventories: Most retailers do at least one physical inventory per year, usually because their accountant requires it. Granted, they are typically not so much fun, but they are quite necessary. And if you find that your inventory is off by more than one percent, you need to dig in and find out why.
The problem that I see most often is that the physical shows how far off the inventory is, the retailer accepts it and then moves on. A bad physical inventory is a symptom of other managerial processes that are not properly executed.
If your physical is wrong, you should start doing cycle counts, which are physical inventories of just a portion of your inventory, such as a department or a vendor. These are good ways to keep your inventory accurate throughout the year. It also keeps your staff on their toes, and can prevent theft.
Seems Like A Lot Of Work
All of this seems like a lot of work. Does it really benefit me? The short answer is, absolutely. But just in case you need more convincing, here’s a list of benefits:
1. You won’t miss sales, because you’ll have the right inventory in the right places.
2. You will identify bad inventory and clear it, freeing up cash for good inventory.
3. You’ll reduce loss through shrinkage.
4. You’ll be able to better measure your inventory’s performance and work more closely with your vendors to get the best goods at the best time.
5. You’ll be better able to plan your inventory (you do have an open to buy, right? If not, we should talk.) and increase your sales, your market share, and profits.
If those were not enough, here’s my experience in this: Getting good inventory control can improve your net profit by as much as 10 percent. So, when you wish that you could buy more marketing, or hire more people or redo your store, but you’re not sure where the money is coming from, look to your inventory. It’s sitting right there.
