In simple terms, "inventory turns" refers to the number of times you sell your entire inventory, in dollars, over a 12-month period. Your inventory turnover is calculated by dividing your cost of goods sold by the amount of average dollars invested in inventory over the same 12-month period. This inventory management indicator is becoming an even bigger issue in music retailing because of the immediacy of product offered to online shoppers. Trying to stock all things for everyone is not only nearly impossible, it causes inventory turns to decrease which, in turn, hinders the vital cash flow needed to run the business.
The Value of Understanding Inventory Turns
This analytical tool to measure inventory productivity should be important to everyone in the industry for many reasons. For the retailer, a better inventory turn usually indicates inventory is “fresher” which, in turn, creates a happier customer and more customer traffic on the sales floor. For the supplier, high inventory turns can mean greater purchases from their music store customer. This, in turn, helps suppliers meet sales quotas and grant purchase discounts to the retailers. Conversely, a slow inventory turn suggests that a store owner may be trying to run a museum instead of a vibrant music store.
Watch this video to learn more about inventory turns and what is considered a typical inventory turn for this industry.