Chapter 4 Inventory Management

Retail Management for Spas The Art & Science of Retail (220T or 220)

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Competencies for Inventory Management

1. Describe the purpose of inventory management in successful retail planning.
2. Explain the benefits of an automated system for inventory management. 3. Define turnover and stock-to-sale ratio and explain their purpose as part of an inventory management system.
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Competencies for Inventory Management

4. Calculate min/max levels for retail inventory and demonstrate how to set correct inventory levels for a variety of retail situations. 5. Apply the concepts of top sellers/slow movers and inventory aging to spa retail inventory to maximize profitability. 6. Explain why the retail method is preferred over the cost method for the purposes of inventory management.
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Competencies for Inventory Management

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7. Describe the concept of open to buy and explain the formula for determining open-to-buy levels. 8. Explain the purpose of a variety of inventory recordkeeping tasks, including markdowns and markups, merchandise received, chargebacks and transfers. 9. Determine causes of shrinkage and list procedures that deter shrinkage.
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Benefits of Retail Management Techniques

Carry the right inventory Carry the right amounts of inventory Manage cash flow Earn a profit

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Calculating Sell Through

Weekly Sales Beginning Inventory for the Week = Sell Through

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Boosting Low Sellers

Presentation Seasonal issues Merchandise quality Training product knowledge

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Inventory Planning
Proper timing of merchandise deliveries

Fresh saleable stock of merchandise at all times

Cash resources available for restock orders

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Pricing and Markdown Cycle

First markdown of 25 to 30 percent off regular price
Second markdown of 40 to 50 percent off original price (30 days later) Third markdown of 60 to 75 percent off original price (30 days after second markdown)
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Reasons for Markdowns

Significant clearance involving permanent price reductions Point-of-sale reductions for damaged merchandise, employee/member discounts, professional use, donations, damaged merchandise

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Receiving Merchandise
Check the merchandise to be sure it agrees with the order, as well as the invoice. Check the cost billed on the invoice against the quoted price on the order. Enter the retail selling price next to the cost price on the invoice. Price all merchandise showing the correct classification letters or numbers. Record the merchandise received on the correct category or classification page.
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Causes of Shrinkage
47 percent internal/employee theft 34 percent shoplifting 14 percent paperwork errors 5 percent vendor fraud

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Calculating Book Inventory

1. Start with physical inventory at retail. 2. Subtract sales. 3. Subtract markdowns 4. Subtract returns of merchandise to vendors (chargebacks)
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Calculating Book Inventory

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5. Subtract merchandise transferred out of the spa to another location

6. Add additional markups on merchandise

7. Add merchandise received at retail

8. Add merchandise transferred into the spa from another location

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