What can a retailer do to increase inventory turnover, and what are the drawbacks to these approaches?

Question

What will be an ideal response?

Answer 1

To increase inventory turnover, a retailer can reduce the number of SKUs in a category or the number of items within a SKU. The problem with these is that if customers cannot find the size or color they seek, patronage and sales can decrease. A second approach for reducing the level of inventory is to keep the same number of SKUs but reduce the backup stock for each SKU. This approach has the same problem as reducing the number of SKUs. Less backup stock increases the chances that customers will not find the size and color they want when visiting a store or website. A third approach is to buy merchandise more often but in smaller quantities which would reduce the average inventory without reducing sales. The problem with this approach is that because buyers are buying smaller quantities, gross margin decreases because they can't take advantage of quantity discounts and transportation economies of scale. It also requires the buying staff to spend more time placing orders and monitoring deliveries. A fourth approach is to increase sales and not increase inventory proportionally. For example, buyers could increase sales by reducing prices. While inventory turnover would increase in this situation, gross margin would also decrease, which could have a negative impact on GMROI.