How to use POS data to improve inventory management

July 2, 2018

The following article was contributed by Emily Fanning, a Marketing Associate at Springboard Retail

Retail is experiencing a shift, and there’s no doubt about it! But that’s all it is—a shift. Notions of “the death of retail” and “the Amazon Apocalypse”—those are not happening on our watch. The industry is changing, but the future of retail is promising and bright, as long as retailers are willing to be agile, creative, and intensely focused on using data to drive their business decisions, especially inventory management.

Strong inventory management is directly died to profitability in retail. Today’s shoppers have high expectations; they want to be able to shop seamlessly wherever, whenever, and they demand inventory visibility. It’s 2018, and managing your inventory is no longer a set-it and forget-it endeavor. Retailers and brands need to have constant access to their POS inventory data to spot trends and correct problems in real time. Moving toward this proactive inventory mindset means using data every step of the way, from planning and buying to selling and reordering.

Data to Buy

Traditionally, retailers relied on space-driven planning. X square feet = $x of product, and we want a 10% increase in sales over last year. Done.

Not so much. Today’s thriving retailers are breaking their sales plans into microplans by category, vendor, store location, and more. They’re looking at historical data to determine how many shoes were sold within the month of May, how yellow dresses performed versus white, if one locations sells Brand X better than the other, and if pants sell “well,” but at a low margin. And once that inventory has arrived at the store, they’re watching sales and adapting based on current conditions and trends.

Imagine that boots had their highest performing days during February last year, and—rightfully and strategically so—you buy this year’s assortment based on that data. But this February gets hit with an unseasonable warm front, leaving customers in need of more warm-weather shoes. The agile retailer has already spotted this trend and made vendor swaps and reorders to fulfill inventory demands for the current conditions, creating satisfied customers and preventing excessive markdowns on out-of-season products.

Determining Key Performance Indicators (KPIs)

A good retail management system offers retailers and brands the ability to create custom fields to collect the data that is most relevant to their business. Fields for attributes like season, style, even fabric or delivery can help provide a more detailed inventory analysis. And if your POS offers custom fields, it should also offer custom reports. Running these will help retailers identify opportunities and issues such as:
• Dead stock and cash tied up in merchandise that is not moving
• Excess inventory forcing margin-killing markdowns
• Low inventory for high performing stock
• Out-of-balance inventory or too much inventory in one channel that is moving in another

Here are three of our favorite reports to tackle such.

Units Sold ÷ Units Received ✕ 100
Freshness is the name of the game! Run this report as often as you can—by brand, by category, by class, and more. It will identify when to reorder something, when to mark it down, or when to renegotiate with a vendor. That’s right, calculating sell-through for brands can help you build a vendor scorecard, which will give you the data you need to negotiate better pricing and terms with your vendors.

Inventory Turn
Cost of Goods Sold ÷ Avg. Inventory On Hand Value
Run this report to determine how rapidly your stock is selling and how well your cash is flowing. The higher the number the better, as that means your inventory is moving quickly! Ask yourself, am I stocking too much or too little of one category? Is an item performing well in one location but not the other—should I initiate a transfer? Did a particular marketing campaign lead to a higher turnover?

Gross Margin by Category, Style, Vendor
Total Net Sales – Cost of Goods Sold ÷ Total Net Sales
Here you’ll get a quick snapshot of which categories, styles, and vendors are performing best over time. It’s a great example of why retailers need to buy based on data as opposed to instinct; be honest and ask yourself, am I buying merchandise that is actually making me money? What categories are actually returning a profit? Which vendors should I invest more heavily in?

Have we convinced you yet? No matter the business size, data is key when it comes to surviving versus thriving in this shifting retail climate. Retailers who are meticulous in their approach to inventory management, use a robust POS system as the engine for their business, and respond quickly to the data they collect, will be the ultimate winners.

Emily Fanning is a Marketing Associate at Springboard Retail, where she focuses on content, digital marketing, and customer stories. Prior to Springboard, she was a retailer herself, leading all of the marketing, advertising, and social media efforts for In the Pink Stores, Inc., an 11-store women’s apparel retailer in New England.

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