In the modern world, retail businesses are part of our everyday lives and cater to our every need and want. For this reason, owning a retail company may appear to be a guaranteed way to make money. The reality for most retailers though is that they are surviving on ever-tightening margins because of competition and increasing overheads.
Retail is a cash hungry business so poor cash flow can put your business in serious financial trouble. Because stock ties up your capital, inventory problems and cash flow issues usually go hand in hand. To remain profitable, you need to continually turn over stock so that you have working capital available to pay your bills.
While you need well-stocked shelves and warehouses so you can meet your customers’ needs, you don’t want to be paying for products to sit in a store room or on your store shelves for an extended period. If you understand your customer base (who is shopping at your store, what products they want, and how much they are prepared to pay), you’re more likely to get your inventory/stock/cash flow balance right. You also need to understand your customer base to develop a marketing strategy that works effectively. If you can develop a loyal customer base, there should always be demand for your products.
Once you understand your customer base, you can ensure you’re stocking products that will move quickly at a price your customers are prepared to pay. If you misjudge your customer base and end up stocking any products that are not selling, discount them to move them on then replace them with products that sell. If people are not buying a certain product, that product is not making you any money, taking up valuable space, and tying up your capital. Focusing on reaching a target market by stocking certain types of products (such as eco-friendly children’s products or gourmet food products) can allow you to streamline your product line, raise product margins, and create a sustainable business. If you stay on top of trends in product margins and product lines that are relevant to your customer base, you can introduce the right products and capitalise on these trends. Making a profit on the goods you’re selling, puts cash back into your business, which is vital for its ongoing success.
Getting your inventory right can require some educated guessing and a bit of trial an error. If you’re not quite getting the balance right or you’re thinking about making changes to your business model, talking to someone independent could help you figure out what you can do to make your business a success.