The Advantages of High Inventory Turnover
High inventory turnover means you efficiently sell product on hand and replace it with fresh products. In general, a high turnover ratio means you are either selling a lot of products or you aren't ordering enough to cover demand. Assuming you aren't experiencing stock-outs and upset customers, efficient inventory turnover has a number of advantages.
Turning over inventory quickly helps you maintain price stability. Since you don't have to hold regular sales promotions to get rid of excess inventory, you can sell more items at regular prices. This helps you get the best profit margins on sales and also helps you maintain brand and product quality images. Customers get used to paying regular price and are less likely to expect a discount.
Your top customers want to see something new and different when they come to your store. If you turn over inventory slowly, your customers may become desensitized and less likely to look around. They may even become bored and visit less frequently, which is not good for business. By selling efficiently, you can keep fresh new products coming in and regularly rotate items in different display areas to get the attention of regular customers.
Selling through more inventory allows you to negotiate better deals with suppliers in many cases. Distributors often offer volume discounts to companies that buy a lot of inventory at once. If you consistently sell products in high volumes, you can order more on each purchase and get better rates. This improves your inventory costs, which allows you to pass on savings to customers or pocket greater margins on sales.
High turnover also helps you protect against waste from perishable or expired items. If you sell fresh fruit, for instance, high turnover helps you keep fresh stock for customers and minimize the amount of product thrown out due to rotting. Cold and flu medication and food items are common examples of products that expire. As these items near expiration, you often have to discount them, or eventually throw them out as loss.