Inventory versus sales

With the summer lull rapidly approaching, many garden centers are taking a critical look at inventory on hand. The last thing a retailer wants to do is spend the summer watering thirsty, excess stock. The quality of that surplus stock diminishes the longer it’s on hand, which translates to lower margin (inventory-reduction sales) and slow turns. Combined, they add up to profit killers.

But, more often than not, garden centers are over-inventoried based on actual sales, according to Steve Bailey, financial analysis consultant with The Garden Center Group. Oversized garden centers and the desire to fill all available space with merchandise during all seasons comes back to haunt owners and managers.

“Ideally, you’re putting the brakes on buying in early May—and living off the ‘fat’ so to speak—to get rid of excess inventory,” Bailey said.

Perception vs. reality. Take a look at the graph showing a hypothetical example of inventory on-hand versus sales of shrubs. It reflects the reality many garden centers face: There’s frequently a wide gulf between what’s in the store and what customers are walking out with.

“Inventory should load up on the front side of a sales season,” Bailey said, “and should be close to zero at the end of the season. You’re never totally out because you’re receiving inventory for the next sales season.”

On the chart seen here, the chasm separating inventory on hand and actual sales represents “money that should be in the bank—increasing cash flow, reducing the need for line of credit, and most importantly, being used to buy fresh, new manageable levels of inventory,” according to Bailey.

Bridging the gap. How can retailers get sales and inventory more in sync? Bailey offered these tips:

• Set revenue goals—know when you need the inventory and when you should be out.

• Put your point-of-sales system to work for you. All product costs and associated data MUST be entered into your system. Otherwise you’ll never get accurate inventory values or have a solid idea of what your turn rate is.

• As mentioned earlier, curtail buying/reorders well before the seasonal slump hits.

For more: Steve Bailey, The Garden Center Group, (618) 319-0205; www.thegardencentergroup.com.