[Answered] Why Do Stores Do Inventory?

Many of us have experienced the frustration of visiting a favorite retail store only to find it closed for inventory. Smaller stores often spend hours, or even an entire business day, managing stock levels and reorganizing their inventory, which can disrupt operations and lead to lost sales.

As a retail store owner using manual inventory methods, you may have faced similar challenges. But why do stores do inventory in the first place? Skipping this process isn’t an option. 

Here’s why conducting regular inventory checks is essential for any retail business and how it contributes to long-term success.

Prevent Shortages and Overstocks

Why do stores do inventory and physically count items in stock? The main reason is to check and keep accurate track of stock levels. Regular inventory checks make sure that your records match what’s actually on the shelves. This prevents issues, like showing a product as available when it’s out of stock, which can frustrate customers.

Tracking inventory levels gives you a clear understanding of what you have in stock, making it easier to manage your shop’s storage space. For example, if the shop is running low on an item, doing inventory helps store managers reorder before it runs out, preventing shortages and keeping customers happy.

If some items aren’t selling as quickly, they can take up valuable space in your warehouse or stock room. Regular inventory checks help identify these slower-moving products, so you can put them on sale, offer discounts, or bundle them with other items.

Detect Shrinkage

Shrinkage happens when products go missing from inventory due to losses, theft, damage, or counting errors. Detecting and combating shrinkage is another critical reason why stores do inventory. It is also becoming a bigger concern — the 2023 National Retail Security Survey found that the average retail shrinkage rate increased from 1.4% to 1.6%.

Regular inventory periods help stores accurately track stock levels over time and detect signs of shrinkage. Store owners compare inventory reports, sales, and physical inventory counts to identify potential discrepancies. If the store experiences regular shrinkage, it may be a sign the business needs stronger security measures or better cycle-counting processes.

Evaluate Sales Performance

Inventory periods are valuable sources of insight into a retail business’ sales performance. They help identify which products the shop sells the fastest and which remain unsold for the longest periods. 

Knowing how fast an item moves out of retail inventory is known as the turnover rate or sell-through rate. Retail stores use this metric to evaluate a product’s popularity and how often it needs restocking. 

Improve Cash Flow

Another reason why stores do inventory is to improve cash flow. The longer an item remains in stock, the more it costs, reducing the likelihood of making a profit on a sale. Besides the cost of buying stock, holding onto inventory can lead to extra expenses and cash flow problems, such as:

• Storage costs: Holding unsold items takes up space in the shop or warehouse, which adds to costs like rent, utilities, and insurance.
  
  
• Shelf life risks: If the retail store sells perishable goods, such as food, holding inventory too long increases the risk of spoilage or expiration before sale.
  
  
• Obsolescence: Items on fast product cycles, such as electronics or fashion, are more likely to become obsolete or out of style if they sit unsold for too long.
  
  
• Opportunity costs: Every unsold product occupies space that could be used for more popular, seasonal, or fast-selling items, ultimately costing the store potential profits. For instance, holding onto back-to-school or Halloween items for too long might take up valuable room needed for holiday-themed stock.

Inventory management periods are opportunities to identify the slowest-moving items and clear them out, improving the store’s cash flow and maintaining its profitability.

Plan for Future Demand

While inventory management provides valuable insights into current stock levels, it also plays a role in forecasting future customer demand. Retail managers can use data such as sell-through rates and past inventory checks to predict purchasing trends.

For example, if a clothing store finds out during inventory that winter clothes sold the fastest in October last year, they can prepare by restocking them before October next year.

Inventory data can also identify unexpected surges in demand for specific items. For instance, if an electronic device sold faster than anticipated, inventory management can determine whether the store has enough stock to cover demand and prevent a stockout.

Why You Need an Inventory Management System

Did you know that only 63% of U.S. retail businesses keep accurate inventory records? As a retail business owner, managing inventory efficiently is essential to keeping your operations on track. Poor inventory management causes disruptions, reduces profitability, degrades customer experience, and leads to lost sales.

Modern point of sale (POS) software includes a real-time inventory manager with the following features and benefits:

• Real-time stock updates: Accurate, to-the-minute information on your stock levels every time you check the inventory on your point of sale system, reducing the risk of product stockouts.
  
  
• Detailed organization: Inventory management tools can track and organize large volumes of stock data for you, such as lot numbers, serials, stock-keeping unit (SKU) numbers, and product information.
  
  
• Analytics and reporting: Compile inventory and stock data into valuable summary and transaction reports. Document all sales, track inventory changes, and get insights on your inventory’s quality.

Keep your customer base satisfied, minimize disruptions, and boost your store’s long-term profitability by adopting efficient inventory management software.

Stay Ahead of Inventory Challenges With Rain POS

Meeting customer demand is the primary reason why stores do inventory. Inventory management lets you keep your stock levels accurate and prevent shortages, overstocks, and shrinkage. It also allows you to evaluate product performance, identify fast- and slow-selling items, and optimize shelf space.

Keeping your retail store’s inventory in order isn’t easy. Fortunately, Rain POS’ integrated inventory management solution can simplify the process. Rain POS has advanced inventory management features (everything mentioned in this blog, and more!) so you can manage your stock — and ensure it’s accurate both online and in-store — from a single system.

Book a demo today to see how Rain POS can help you manage inventory better, increase sales, and keep your customers happy!