Where should a retail stores average inventory dollars be in relation to their annual gross sales dollars?
A. Your inventory does appear to be on the high side, although some types of stores need to be slightly over-inventoried to conduct business and make a profit. The real answer is to look at return on investment (ROI). Until you start to do an annual inventory turn close to two, you won’t make any money. On average, most businesses look for upwards of three to four turns a year (although some small businesses can achieve 10 or more). Also, turnover and net markup go together. If you don’t do the turns, you need a higher maintained net markup. If your net margin is high, there’s no problem with higher inventory levels. Low costs also can allow higher inventory levels, as can receiving a significant price break for buying in quantity. It’s also important to look at which items are turning and which aren’t. Those that aren’t should be eliminated, and those that are turning quickly should be increased. It’s really more a matter of tracking what’s moving and what isn’t. You might find that y
