Inventory indiscretions revealed

Keeping an eye on costs is a daily job of every fashion business owner, but is your inventory costing more than you think? Matthew Nolan lifts the lid on the hidden costs you're paying on inventory.

Having sufficient stock on hand to meet customer expectations for the current season is essential for making sales. But there's a downside to holding large amounts of stock and these can quickly add up to become significant costs, eroding the profits in your otherwise successful fashion business. Here are some of the most common costs of inventory indiscretions that should be avoided where possible:

Shrinkage

Stock that isn't well secured and reconciled will swiftly become a target for thieves. It's estimated that an average of 1.7 per cent of stock is stolen from businesses. It's even more disappointing to note that the most common perpetrator of this theft is staff, who account for almost half of all shrinkage. Customers are another big contributor through shoplifting, with others including administrative errors and supplier fraud. 

To avoid shrinkage it's vital that your business has an accurate picture of what inventory it is holding, with each item of stock recorded on an inventory management system that is subject to regular checks.

Obsolescence

Consumer tastes for fashion are fickle and can leave you holding last years hottest item that has become unsalable at even discounted prices. To avoid this it's important to keep abreast of upcoming trends and to keep orders to realistic levels. This may mean more frequent orders for smaller amounts, so that you avoid being overstocked with obsolete items from previous seasons.

Storage costs

Whether stock is stored in a dedicated warehouse or in the back room of your retail premises, there's a cost to storing this stock.  That includes rent, electricity, insurance and the costs associated with handling the stock each time it needs to be moved and reconciled. An alternative is to outsource this function to a logistics specialist, which should be considered in light of the potential cost savings against the complete storage costs presently incurred.

Transport

As fuel costs have gone up, so have transportation costs. To keep these to a minimum it's important to minimise unnecessary transfers of stock between locations. The sale of a shirt that's sent to another store can quickly become an unprofitable sale, especially if it's couriered as a single item at no cost to the customer.

Damaged stock

If a detailed inventory of damaged stock is maintained, most businesses are stunned at the amount of damaged items that need to be thrown out or sold at significantly reduced prices. To minimise this often avoidable cost, keep storage areas well maintained, clean and clearly laid out to avoid soiling or damage to clothing products.  Items than commonly damage stock such as box cutters, food and any other substance that is likely to leave a permanent mark should be kept well away. 

Effective inventory management can mean real savings for your business. The simplest way to avoid much of this cost is to minimise stock levels where possible, and ensure that you have reliable suppliers that can quickly restock you as required.  

By Matthew Nolan