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How Lower Inventory Raises Hopes

by simon
Let’s take some recent news from big retail as a great reminder about inventory. Improved inventory management to lower inventory levels is saving companies from despair.

Three major retailers in the US have beaten the odds with better inventory management.

According to Reuters, Kohl’s, Nordstrom and Macy’s all reported better-than-expected profits for the last quarter of 2016.

A key reason for this? The companies went into the holiday season with lower inventories. They hit their margin targets through smarter inventory management and avoided the post-holiday markdowns of Christmases past.

The strategy worked wonders for Kohl’s. Inventory per store was down 5% at the end of the year. This is a stunning about-face from the year before when the chain started 2016 carrying 5.7% more inventory per store.

Lower Inventory As Strategy

Kohl’s better-than-expected performance shows how its plan to shrink inventory and physical store size is working.

The retail chain operated 1,155 stores, the majority of them averaging about 88,000 square feet, according to CFO.

The company in 2016 shut down 19 of those large spaces and test-marketed nine stores with much smaller footprints (35,000 square feet). Kohl’s will refit many of its remaining stores to reduce its overall footprint.

The goal is to rationalize floor space in almost half of the company’s fleet. This will reduce overhead and the level of inventory needed per store. The company at the same time has seen an increase in eCommerce sales and a shift in inventory away from stores to fulfillment centers.

Kohl’s opened a fifth US fulfillment center in 2016 to reduce inventory required in its retail space, to meet direct shipping fulfillment options.

Lower Inventory: Good for Everyone

All retailers, wholesalers, and omnichannel businesses benefit from lower inventory.

It is far too easy to carry too much stock and extra items in anticipation of customer demand. If a company doesn’t meet inventory targets, it can find itself carrying excess stock that cost money to warehouse and that may only sell at severe markdowns (if at all) particularly for obsolete items. Excess inventory results in lower cash flow.

Companies of all sizes can optimize their inventory with planning and data.

A good place to start inventory planning is to learn the basics. And the best way to gather data is to use a tool that tracks sales, stock levels and COGS in real-time throughout your supply chain.