Table of contents
What are retail inventory costs?Best practices for retail inventory management
Retail inventory management relies on your employees, your processes, and the technologies at your store. Poor retail inventory management is a common reason new businesses fail, likely because the cost of inventory — whether you’re ordering the right amount or storing things too long — can have a significant impact on your profit margins.
What are retail inventory costs?
Inventory costs can be broken down into these categories:
- Ordering costs are the costs associated with purchasing inventory. This can include your vendor costs, inspections, and shipping costs.
- Shortage costs are the various costs that come up when a product is out of stock. These can be monetary costs, like expedited shipping, as well as nonmonetary costs, like customer satisfaction.
- Carrying costs are the combined costs of holding your inventory and are usually compared to the actual value of the product being held. Ideally you should carry 20 to 30 percent of your inventory value, but the average rate varies by industry.
Retail inventory management can be key to driving costs down. You need to strategize tactics to control your stock so you can maintain the appropriate amount of inventory to meet customer demand without holding excess materials at your store (which costs you money).
Best practices for retail inventory management
So how can you manage inventory at your retail store? Here are five best practices for retail inventory management.
Invest in an inventory management system
You can do inventory management manually, but it can be tedious and inaccuracies often arise due to miscounting. Inventory management software allows you to automate the tracking process and saves you a substantial amount of time. Look for software that integrates with your retail POS, so your inventory count is displayed in real time.
Set up stock alerts
Stock alerts can help you prevent product shortages at your retail store. When you set up stock alerts, you can select a minimum inventory for each of your products and get alerts when items are near or below the threshold.
Select suppliers strategically
Your vendors are key players in your retail inventory management strategy, so you need to select them carefully. With each supplier, consider the price, product quality, reputation, and efficiency.
To best manage your vendors, be sure to set expectations early and form a strong relationship. Your success is dependent on their efficiency and effectiveness, so make it clear that you and your vendors are partners.
Implement SKU management practices
Businesses continue to increase the range of products they sell in order to meet the demands of consumers. But that doesn’t mean you should carry an overwhelming amount of products at your retail store — it can actually hurt your profitability. SKU management is the process of analyzing the carrying cost for each SKU item to determine which products are best serving your business. If certain SKUs aren’t performing financially, consider discontinuing them in your retail store.
Optimize your order size
When you strategically plan a bulk order of materials from a vendor, you minimize purchasing and shipping costs. Analyzing retail metrics, which you can easily do with data analytics tools in your POS, gives you insight into how you should create purchase orders.
Consider drop shipping
If you’re starting an online store, you may want to consider drop shipping, a retail fulfillment method where the store doesn’t hold inventory. Instead products are shipped from the manufacturer to the consumer.
FAQs
Log into your online Square Dashboard and go to Items & orders > Items. Click Settings > Inventory. Toggle on Enable inventory tracking for new items.
How to do inventory with Square for Retail? ›
Manual
- From the navigation bar in your Square for Retail app, tap Inventory. ...
- Tap Adjust Stock > Count.
- Tap the search bar at the top of the screen, and select the appropriate variation > tap Add to List.
- Tap the item variation to input a quantity using the number pad > tap Done.
Square for Retail Free, Plus and Premium plans come with a variety of inventory management tools to suit all retail customer needs. You can manage items and inventory via your online Square Dashboard, Square POS app, Square for Retail app or Square Online.
Is Square good for inventory? ›
Square POS is so much more than just a payment platform. Discover the extensive range of built-in tools, including free inventory management built to serve all sales of physical goods with the following features: Track sales in real time and stay updated on stock for all your items to stay ahead of customer demands.
What is the rule of squares inventory? ›
Inventory management's square root law gives you an estimate of how the number of warehouse locations affects the size of your inventory. From leanmath.com, the formula is: X2 = (X1) * v(n2/n1) where v is the square root. Therefore, a single warehouse reduces the inventory by one half.
How to do the Retail inventory method? ›
The retail inventory method calculates the ending inventory value by totaling the value of goods that are available for sale, which includes beginning inventory and any new purchases of inventory. Total sales for the period are subtracted from goods available for sale.
How do you account for inventory in a retail store? ›
Determine the cost of goods available for sale (cost of beginning inventory/cost of purchases). Figure out the cost of sales for the period (sales x cost-to-retail percentage). Calculate the ending inventory (cost of goods available for sale – cost of sales during the period).
How do I start managing inventory? ›
Inventory management techniques and best practices for small business
- Fine-tune your forecasting. ...
- Use the FIFO approach (first in, first out). ...
- Identify low-turn stock. ...
- Audit your stock. ...
- Use cloud-based inventory management software. ...
- Track your stock levels at all times. ...
- Reduce equipment repair times.
Important areas when managing a store
- Customer experience. ...
- Visual merchandising. ...
- Inventory management. ...
- Streamlined store operations. ...
- More tips for managing a store. ...
- Get feedback from employees and customers. ...
- Give positive feedback to employees. ...
- Stay organized.
From your Square Point of Sale, tap ≡ More > Items > Categories. Tap + to create a category. Name your category (like Drinks, Food, Shoes, etc.), add items, and adjust any other relevant settings. Tap Save when finished.
Barcode scanners
If your inventory utilizes bar code technology for tracking purposes, you can connect a bar code scanner directly to your Square hardware. A bar code scanner allows your cashiers to quickly ring out items without having to scroll through your item library.
Can you use Square for Retail? ›
Set up fulfillment types with Square for Retail: Choose how you will fulfill your orders: In store, shipping, pickup, delivery, or self-serve.
How do I run inventory on Square? ›
To enable this feature:
- Go to Items & orders > Items from your online Square Dashboard.
- Click Settings > Inventory.
- Toggle on Enable inventory management for invoices.
- Choose applicable locations or select All Locations.
- Click Save.
Square's straightforward and transparent pricing for software and payment processing services and its easy-to-use user interface are among the reasons it's NerdWallet's pick for best POS system. Square is a good option for many small- and medium-size businesses; some large businesses use it, too.
Does Square handle accounting? ›
Square accounting is now automated. GetLinked software saves you time and money. Automate taxes for online sales worldwide. Simplify your bookkeeping with software designed for small businesses.
How do I add items to my Square inventory? ›
From your Point of Sale, go to ☰ More > Items. Tap All items > Create Item. Tap the square tile to add a label, upload an optional image, or choose the tile color that'll appear on your item grid. Enter item information such as a name, category, description, and image.
What is the difference between Square POS and Square Retail? ›
Square for Retail is a comprehensive, all-in-one POS solution designed specifically for retail businesses. Square for Retail builds on features from the standard Square Point of Sale and includes advanced functionality to help retailers run their business more efficiently.
How do I create an order on Square Retail? ›
To create an order on the Square for Retail iOS app, Square Terminal or Square Register:
- Select an item to Add to Basket.
- On the item details screen, select the fulfilment method you wish to apply in basket, including Pickup and Shipping. ...
- After all items have been added to the basket, tap Charge to complete the sale.
