For many retailers, stocktaking is considered a necessary evil. But physical inventories come at great cost: time, money, and overall efficiency. As a result, many stores only perform an annual or bi-annual stocktake,but is there a better way?
Can Stores Still Afford to do Annual Stocktakes this Year?
Knowing what’s in your store is essential to running a profitable retail business, whether it’s an independent boutique or a store in a chain of thousands. There are two things that keep stores ‘In the know’ when it comes to their inventory, stocktakes and their inventory management systems. A stocktake allows you to establish your view of inventory (at reasonable expense and effort) whereas the better your inventory management system is, the longer that view of stock stays accurate.
Even if your inventory management is top quality, without regular stocktakes accuracy will begin to slip. Factors like theft, admin errors and stock movement will mean that before too long the stock file and the physical inventory become increasingly out of sync.
This problem is multiplied the bigger a retailer’s footprint is. When looking at hundreds or even thousands of stores, stock inaccuracy can add up to unthinkable amounts of capital. Just look at British retailer Ted Baker who last year discovered a £58M hole in their business, entirely due to inventory mismanagement!
For many retailers then, stocktaking is considered a necessary evil. But doing a wall-to-wall count of every individual product in a store is no mean feat. Physical inventories come at great cost: time, money, and overall efficiency. As a result, many stores only perform an annual or bi-annual stocktake, but these leave a lot to be desired.
Let’s go through how and why annual stocktakes can be so expensive to perform and even ask, can retailers afford to go on like this?
The cost of annual stocktakes
The upfront cost
Physical inventory counts are big operations that are expensive to perform. Doing a wall-to-wall stocktake of everything in a store (backroom and salesfloor) takes a lot of time and manhours. To perform a physical inventory count, retailers have two options:
Carry out the stocktake internally
One option is for a store to carry out the inventory itself. This is tricky but not impossible, provided the staff are organised, attentive and know what they’re doing. The major downside is how labour intensive it is, requiring a lot of store staff, making working around opening hours difficult (more on this later).
For independent or particularly well-staffed stores, internal stocktakes can work. The issue is it does not scale. For a retailer with hundreds of stores, asking every one of them to perform such an operation once or twice a year puts a lot of pressure on store management – and the results will be inconsistent at best
Use a third-party service
Using a specialist service to perform the physical inventory does have its advantages. First off, the accuracy of the stocktake is likely to be more reliable, and it is easier to scale up the use of such a service to more and more stores. The major downside is the considerable cost. Whilst it depends on the service used and the size of the store, these stocktakes can cost around $2000 – $3000 per store. Assuming each store only performs such a count once a year, when scaled across tens or hundreds of stores, the cost becomes immense.
The disruption to stores
Regardless of who you have performing the physical stocktake, the other question is when. A full inventory takes time, whilst it naturally depends on the size of the store and the team, it will likely take half a day at a minimum.
If the store is closed once a week, then this is the obvious choice. However, larger brands can often operate seven days a week…
So that leaves retailers with another difficult choice – close the store, or perform the stocktake overnight? Naturally, closing the store means losing sales and disrupting customers. While performing the inventory count overnight can make for a tight schedule.
An overnight inventory count is more doable (and common) when using a third-party, but it is not always feasible if you are using internal staff. Not only are you asking (and paying) for staff to come in out of hours, but you also will not be able to use that set of staff of either day either side of the overnight stocktake – making it incredibly difficult for smaller teams.
The suboptimal results
So those are the implications for actually performing annual/bi-annual stocktakes for retail stores, but there is something else to consider…
The fact is manual inventory counts give you subpar results. Even with supporting technology like barcode scanners, the margin for manual error is still significant meaning right from the outset you will still have errors and discrepancies. A much bigger factor – performing stock counts once or twice a year is simply not enough anymore. Sure, you may have 90% accuracy every 6 months, but what about the time in-between?
Typically store inventories run at 60-80% Item Level accuracy. However, stores will rarely report such low numbers because:
A) They only calculate accuracy after a stocktake
B) They are working on an SKU (stock-keeping Unit) level, and not an item-level.
C) Errors in stocktaking procedures mean stock file and actual inventory do not match, i.e., the accuracy quoted is not accurate
This level of stock inaccuracy also comes at a cost – and it’s a steep one. Stock inaccuracy causes three problems for stores.
Overstock – Excess stock, a result of the inventory list not showing items that are present in the store. Often compounded by stores carrying ‘safety stock’ for key products.
Understock – A lack of product, a result of the store inventory showing items that aren’t really there. Also called ‘phantom stock’, one of the main causes of this is theft. Understock leads to products becoming out-of-stock altogether, meaning lost sales and revenue.
Dead Stock – For perishable products, dead stock means products that can no longer be sold. While sectors like fashion don’t have this problem having stock sat unsold in backrooms can lead to products falling out of season, resulting in mark-downs and profit loss.
The bottom line of this inaccuracy? 10-15% higher working capital in stores, as a result of bloated inventories, and 5-10% of sales being lost simply due to stock not being available for customers to buy.
The alternatives to annual stocktakes
A cycle count is where a store performs a partial count of a specific portion of store stock. Instead of performing an annual stock take once or twice a year, you might perform a cycle count several times a quarter. Essentially, you are breaking down the annual count into several mini stocktakes.
This has many benefits over annual stocktake – less disruption to the store, less labour intensive and (since it can be done by store staff) it’s cheaper. It can also help avoid the large variation that you get when there is a larger gap between takes.
While this is certainly better, cycle counts require a lot of coordination and still have the same problem as all manual stock counts: they are time-consuming and inaccurate. So, whilst cycle counts will reduce the costs compared to annual stocktakes, the cost of the inaccuracy will stay the same.
Having looked at the costs and problems associated with manual yearly stocktakes, you’d be forgiven for thinking successful large-scale brands don’t operate like this – and they don’t.
Radiofrequency Identification (RFID) is a technology that allows stores to perform rapid inventory counts, via product tags that emit a small radiofrequency. Stores that have implemented RFID can perform weekly or even daily stocktakes, as a single member of staff with an RFID reader can count thousands of items in minutes. The result of this is RFID stores have typical inventory accuracy of 99%, and no more need of annual stock takes.
Installing RFID in stores is a reasonably big project and requires some upfront investment. However, if you look at the cost of performing third-party stocktakes every year alone that money could be used to fund the RFID project and it delivers a stronger return of investment than regular physical inventories. This without mentioning the various other benefits of the technology, which you can read about here.
Cloud-hosted RFID software
Stock accuracy, on-floor availability, and omnichannel applications in stores.
Detego Store is a cloud-hosted RFID solution which digitises stock management processes, making them more efficient and more accurate. Implemented within hours, our multi-user app can provide intelligent stock takes and a smart in-store replenishment process. Later, you can scale the solution to offer omnichannel services and effectively manage your entire store operations with real-time, item-level inventory visibility and analytics.