Do I Manage the Inventory for My Retail Franchise?

By Franchise Gator

Posted : September 12, 2023

Category : For Beginners

Do I Manage the Inventory for My Retail Franchise?

One of the most important tasks for anyone working within the retail industry is managing inventory. Establishing an effective system for inventory management helps to ensure that you’re not only able to serve every customer effectively, but you’re also making cost-effective decisions regarding how much inventory to keep on hand at a given time.

If you’ve been exploring retail franchises (perhaps you’ve already come across our Guide to Retail Franchising), then inventory management is something you’ll need to understand well. 

In this article, we’re looking at inventory management for retail franchises, including three main topics:

  • Why inventory management is essential
  • Whose responsibility it is
  • How to manage inventory in a retail store

Why Is Inventory Management Relevant in a Franchise Business?

inventory management

As you can imagine, the importance of inventory management in retail is difficult to overstate, since retail—by its very nature—is an inventory-driven type of business. A retail franchise cannot properly serve its customers if it’s constantly losing track of inventory or simply failing to keep enough items in stock for its customers. Conversely, inventory mismanagement is a quick way to lose customers, which can threaten the franchise’s bottom line as well as its very existence as a viable business.

Who Is Accountable for Inventory Management: the Franchisor or the Franchisee?

When you open a retail franchise, you take on a wide range of responsibilities—including inventory management. When you sign a franchise agreement, you’re essentially paying for the right to use the larger brand’s trademarks while operating your own storefront. This means the responsibility of inventory management falls squarely on the franchisee’s shoulders. 

What Is the Most Effective Inventory Method for a Retail Franchise?

For your average retail franchise, the most effective inventory method is one of the most common: “first-in, first-out” (FIFO). The basic principle is exactly what it sounds like: rotating your inventory in a way that ensures the inventory that’s been on-hand the longest is what you sell first. 

An easy way to understand this method is to think about a grocery store for a moment. Since gallons of milk expire, grocers typically put new inventory behind older inventory. Otherwise, they would always have gallons of milk spoiling. Instead, they typically load new inventory from the back of the refrigerator unit, so customers buy the older inventory before it goes bad.

The same principle applies to virtually any retail environment, whether you’re selling CBD tinctures, mattresses…anything! 

What Are Some Retail Inventory Management Best Practices?

In addition to the first-in, first-out methodology, additional inventory management best practices for retail franchises include:

  • Establishing—and tracking—meaningful key performance indicators (KPIs). These will enable you to track performance and understand whether you’re on pace to meet revenue goals over the course of a week, month, quarter, or year. Obviously, KPIs such as total sales are vital, but additional metrics such as inventory carrying costs and inventory turnover ratio provide deeper contextual insights.
  • Using a method such as “ABC analysis” to prioritize inventory for restocking. In most retail environments, different products will be offered—some of which will consistently out-sell others. Performing an ABC analysis simply means identifying which products are the quickest sellers and making them the highest priority (“A”) for restocking. 
  • Regularly auditing your inventory. This is especially important for your quickest-selling products, for two reasons. First, it helps to ensure that you are able to meet customer demand. Second, it helps you to better understand any trends—positive, concerning, or otherwise—related to your inventory.
  • Developing productive relationships with vendors and suppliers, if applicable. In a majority of cases, when you sign a franchise agreement for a retail store, you won’t be solely responsible for sourcing your inventory. That’s actually one of the greatest advantages to retail franchising: the franchisor determines what product lines to stock, which vendors or suppliers to acquire those products from, and so on. 
  • Paying attention to not only sales, but returns as well. This will help you to better understand which products customers like and which ones they’re not so thrilled about. If you’re not tracking returns, you might miss out on key insights. For example, there could be a major defect affecting a particular product line—or defects specific to individual shipments or batches. The quicker you can catch these issues, the better.
  • Ditching ledgers and spreadsheets in favor of an inventory management system. Ledgers and spreadsheets may be sufficient for very small, mom-and-pop type stores, but when you own a retail franchise, you’ll benefit from an inventory management system. This is a type of software that makes it easy to track and manage inventory, including purchases and sales. Depending on the software you decide to use, and how you decide to use it, these systems can also track things like expected deliveries, status of inventory orders, and more. 

Find a Retail Franchise You’ll Love With Franchise Gator

With Franchise Gator, you can explore an exceptionally wide variety of retail franchises, so you can find the perfect fit for your interests and investment level. Depending on your geographic area, you can discover franchises available across a number of retail industries, including clothing, floral arrangements, jewelry, video games, or even wild bird supplies. Opportunities are abound at!

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