Retail inventory management: 7 steps for success in 2023

Retailers have experienced a massive shift in buyer behavior since the COVID-19 pandemic began.

Restricted by state and local mandates geared to slow the spread of the virus, brick-and-mortar stores closed, and consumers turned to digital storefronts and the convenience of home delivery. Business owners transitioned to the web not only to comply with regulations, but also to serve the needs of their buyers and ensure the safety and health of both employees and customers. 

Like other inventory-driven industries, retailers were forced to implement change at a fast-and-furious rate. And while many were able to pivot on a dime and stay afloat in the short term, longer-term planning that looks beyond just updating technology is required to ensure business viability going forward. The following guide will give you helpful tips to jumpstart your planning.

7 Steps for successful retail inventory management

Consider a few smart tips and tactics collected from inventory management experts Mario Nowogrodzki, CPA.CITP, CEO, and Keith Fileccia, COO, at Mendelson Consulting. The following list serves as a starter guide to help you prepare your business to be more agile and prosperous moving forward.

Step 1: Get control of your inventory 

Many businesses entrust third-party logistics (3PL) providers with full control of their inventory. The time has come to turn the tables. Don’t rely on 3PL providers to accurately report on inventory levels, Nowogrodzki recommends. Take the lead role by regularly monitoring, auditing, and managing inventory in your system to maintain an accurate picture of your stock. This is more critical than ever as retailers move to digital storefronts.

“In relation to inventory, the days of guesswork and trusting your gut are long gone,” stated Nowogrodzki. “Businesses must take back the reins and be in control of their inventory.”

Fileccia added: “You have no idea what merchandise is going in and out of the back door if you don’t stay on top of your inventory. It’s your stock; you should always know what you have on hand. Trust your 3PL, but always verify.”

Step 2: Identify and move “dusty” stock

Having full control and an accurate count of inventory also enables you to identify available inventory that is just sitting in the warehouse collecting dust (or dead stock)—including such items as spare parts and after-sales stock. Identify ways to move these items and use the inflow of cash as a bridge to keep production running and enable delivery to customers. 

For example, if you have after-sales stock, create product bundles and sell them at a discount (known as bundle pricing) or move outside the supply chain and sell directly to consumers. 

“The longer products sit in a distribution center, the bigger the liability,” said Fileccia. “You have to find alternatives to move inventory.”

To help push available stock, also consider upselling slow-moving inventory to customers. For example, if you have hundreds of tote bags sitting in your distribution center, run a campaign that offers a tote at half off if purchased with two full-price items. Make sure you’ve trained your staff to upsell as well.

Step 3: Redirect merchandise for online sales

With the continued uncertainty of the economy and the mass migration to online shopping, savvy retailers are moving goods from physical stores to online shipment warehouses (or creating micro-fulfillment centers) for easy fulfillment. As it’s likely that buyer behavior will continue to lean heavily toward online for the foreseeable future, making merchandise available online is a sound move.

This, of course, will also require added investment in your website platform to ensure a fast and efficient online shopping experience.

Step 4: Remind your customers that you are open

While this sounds like a no-brainer, there are more businesses than you might think that don’t properly advertise or consistently build awareness around their brand, products, and services. The pandemic caused many physical storefronts to close, leaving customers believing that operations were shut down all together.

With this in mind, put a communications plan together that includes digital marketing, advertising, and social media pushes that build awareness around your business and what you sell as well as one that supports a “buy local” theme. Most of all, building awareness will let consumers know that you are “open” for business.

Step 5: Create a safe environment for workers and customers

A strong focus on safety has many positive outcomes. First, it makes employees feel like they are important to the organization. Second, it shows clients that you are responsible and care about their health and well being.

Implement a safety plan, educate your staff on procedures for safe operations, and then empower them to enforce the rules with customers. Also, consider providing employees with the proper personal protective equipment required to perform their duties safely and confidently.

“Keeping your people safe should be a top priority,” said Nowogrodzki. “You’ll also gain client loyalty when they see that you are taking their health into consideration.”

Step 6: Join or create a retail think tank

In times of crisis, it’s good to be part of a larger business group (even if that network contains your competitors). Join a local or regional network made up of retail executives who share a common goal: to exchange expertise and ideas.

This type of collaborative provides a reliable source of guidance to help solve common issues that arise from everyday business and crisis situations like the pandemic.

Step 7: Automate inventory management

Automating workflow in retail stores and larger-scale retail businesses is the key to heightened efficiency across departments and roles. And this starts by investing in the right inventory management system—one that integrates with other required technologies such as point of sale (POS) and client relationship management (CRM) software.

Retailers face an array of challenges from maintaining proper stock levels and managing inventory control and inventory counts to dealing with carrying costs, dead stock, reorder point, and ABC analysis—and in the wake of the pandemic, transitioning to an e-commerce platform/online store (for example Amazon or Shopify). And all of these challenges occurred while retailers tried to maintain a certain level of profitability, strengthen the bottom line, and meet changing customer demand.

The complexity of running a successful retail enterprise calls for those within the vertical to automate processes and workflows to better control everything from physical inventory tracking, sales data, purchase orders, reordering, sales channels, warehouse management, cost of goods sold, demand forecasting, inventory turnover, new product arrivals, online merchandise, purchase orders, and everything else required to successfully manage retail operations. Also required is full visibility into real-time data to support informed forecasting and smart on-demand decisions.

Automation begins by adopting the right technologies, such as an advanced inventory management solution, POS, and CRM software that can seamlessly integrate with your accounting system. The ability to automatically sync data between solutions (essential functionality) better positions retailers for successful inventory management, maintaining appropriate inventory levels and accurate cash flow forecasting because data is presented in real time, and workflows are automated and streamlined.

Let the planning begin…

While not an exhaustive list, the tips offered in this guide provide retailers with a good starting point to strategize for the future. With ongoing uncertainty around the economy, redefining business models and building an organization that is agile is required if the retail industry is to evolve and remain resilient in the face of change.