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 youโre not only able to serve every customer effectively, but youโre also making cost-effective decisions regarding how much inventory to keep on hand at a given time.
If youโve been exploring retail franchises (perhaps youโve already come across our Guide to Retail Franchising), then inventory management is something youโll need to understand well.
In this article, weโre 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?
As you can imagine, the importance of inventory management in retail is difficult to overstate, since retailโby its very natureโis an inventory-driven type of business. A retail franchise cannot properly serve its customers if itโs 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 franchiseโs 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 responsibilitiesโincluding inventory management. When you sign a franchise agreement, youโre essentially paying for the right to use the larger brandโs trademarks while operating your own storefront. This means the responsibility of inventory management falls squarely on the franchiseeโs 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: โfirst-in, first-outโ (FIFO). The basic principle is exactly what it sounds like: rotating your inventory in a way that ensures the inventory thatโs 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 youโre selling CBD tinctures, mattressesโฆanything!
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:
- Establishingโand trackingโmeaningful key performance indicators (KPIs). These will enable you to track performance and understand whether youโre 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 โABC analysisโ to prioritize inventory for restocking. In most retail environments, different products will be offeredโsome 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 (โAโ) 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 trendsโpositive, concerning, or otherwiseโrelated 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 wonโt be solely responsible for sourcing your inventory. Thatโs 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 theyโre not so thrilled about. If youโre not tracking returns, you might miss out on key insights. For example, there could be a major defect affecting a particular product lineโor 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, youโll 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.
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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 FranchiseGator.com!