Secret Life of Inventory

Mastering Retail Inventory Management (Why did F21, Kmart, and Sears go Bankrupt?)

• inFlow Inventory • Season 1 • Episode 2

Share episode

In episode two, we share the fundamentals of mastering retail inventory management. Discover proven best practices and real-world case studies like why did Forever 21 go bankrupt? What happened to Kmart and Sears? And how does Walmart stay as one of the top retail giants?

Get ready to be educated and entertained with insights on inventory management. Subscribe to stay tuned for more!

0:00 – Teaser
0:10 – Intro
0:57 – What is Retail Inventory Management?
3:25 – Types of Retail Inventory
6:39 - What are the Benefits of Effective Retail Inventory Management?
10:31 - Best Practices for Business Owners
12:48 - Real-World Case Studies
12:57 - Forever 21: The Rise & Downfall
14:21 - Walmart vs. K-Mart: Price War in 1990s
16:30 - Why Sears 
18:09 - Walmart RFIDs: Radio Frequency Identification
18:55 - Uniqlo RFID Tags and Check-out System
19:49 - Decathalon RFID Check-out System
20:03 - Amazon Go RFIDs
20:35 - Outro

Try inFlow to manage your inventory and make sure you never run out of stock:
https://www.inflowinventory.com/

Retail inventory management is all about having what you need to meet customer demands, but not having too much of it that it's going to eat into your cash flow and your carrying costs and all that. Right. So. Hello everybody I am Jared. Hi, I'm Melinda, and. Welcome back to The Secret Life of Inventory. This is a show where we talk about everything inventory related. And in today's episode we are going to be talking about the retail space. So anyone who's working either if you got a brick and mortar or you're working in e-commerce, doesn't matter if you're working in retail, we're going to be talking about all the different types of inventory that you're going to be dealing with, some of the the benefits of having good inventory management and some of the best practices that you can do to get your business running at an optimal speed. We'll also be exploring some real world examples of good and bad inventory management, and in future episodes will also be interviewing business owners to learn more about their tips and tricks. So be sure to stay tuned for more! So, for those who want to understand the basics, can you explain to us what exactly is retail inventory management and what does that entail? So retail inventory management for the most part you're dealing with two different types of inventory. So you're dealing with either finished goods or you're dealing with packing materials. Now before we get into those I want to start off by saying that there there are certain retailers who actually do manufacture the products that they're that they're selling to their customers. Those are kind of rare cases. It doesn't generally a manufacturers tend to, you know, they make big quantities of things and they sell those things to wholesalers. Right. But there are certain like for example, we have a customer organic chocolates. They're based out of California. And what they do, their business model is they have an online store and their customer purchases the chocolates from that store, and then they manufacture the chocolates and they shipped them directly to the customer. So someone like that is they're a retailer, but they're also manufacturers. They have a lot of like raw materials, a lot of other things to to worry about, not just the finished goods and not just the packing material. So for this episode, we're only going to be focusing on people who are working in the retail space only. So people who are buying, you know, buying their products like wholesale, either from a wholesaler or a distributor or something, and then selling those products to their customers. Right. So when we're talking about finished goods, that's what we're talking about. We're talking about things that are ready to go. They're on the shelf. They're ready to go to the customers. Right. So those are your products obviously. And then we're talking about packing materials. They're equally as important as your finished goods. Right. So we're that's your boxes your to your tissue paper your bubble wrap. If you're bundling sometimes you'll have like a special packaging that you'd use for your bundling. All that stuff is is very important because ultimately if you're selling something to a customer. So if you're selling, say you're selling something that's really fragile, you know, like a, like a camera, for example, and you, you, you have the great sale and you sell way more cameras than you expected. But you have the cameras, which is great, but you don't have the packing materials, right? So you don't have the the special bubble wrap that you use to make sure that camera gets to the customer safe and sound, not broken. Exactly. 5000, $10,000 dollars. Pretty important. Pretty important. So it's not like you can just send that camera off with the packing material, right? So then your shipment gets delayed and you have to wait for your packing material to come in. So one way or another, you're not the customers not getting the camera. Even though you have the camera, they're still not getting it right. So that's why packing material don't sleep on packing material. You know, that's it's very, very important. That's true. Even when you're shopping. It's not just the shirt or pants that you're buying. It's also the bag that the shirt and pants go into that the retailer has to keep track of. Yeah, absolutely. Are there any other types of retail inventory that people should be aware of? So I guess the best way to think about it is, is breaking your finished goods down and kind of into different categories. So there's five main categories that you want to want to think about when you're dealing with your finished goods. The first one is the ready for sale. So that's all your stuff that's on the shelf. It's ready to go. Customers can buy it whenever they want. It's available for purchase right now. It's pretty obvious when you're a brick and mortar store if it's ready for sale, because if it's not ready for sale, it's gone. The customer is taking it to the door. They pick it up off the shelf, they take it, and then it's gone. Right? So it's more for e-commerce. When something is ready for sale and someone's purchased it, it moves into the next category. The second one which is allocated. So it's it may be on the shelf and you may have it in your actual facility and your in your space, but it's actually not really there, so to speak, because it's already been sold to a customer. So it's allocated to a sale. Right. So you can't sell that again. You've got to make sure that you're not just looking at your inventory and saying like, oh, I have this thing, I can sell it. You don't know that you really have it. Even if you're tracking your inventory on, say, a spreadsheet or I think this entire podcast is me, just talk poorly about spreadsheet PTSD. Exactly, exactly. Right. So if you're if you're using a spreadsheet or manually or whatnot and you forget to, maybe there's a lot of different salespeople that are working on something, and one of them forgets to update the spreadsheet saying that they sold this item, you see it on the spreadsheet, oh, I have this. So then you sell it, then you find out, oh no, I actually don't have that thing. So that's why it's really important to make sure that you're labeling these things as they go down the process, you know, ready for sale into allocated. And then into our next one, which is in transit. So in transit is essentially all of your products that are actually in transit. And it's in the name obviously. So when it's when you send it out from your facility or your storage warehouse or whatever, you've shipped it off as it's on the way until it gets to your customer, you're still liable for that thing, right? That's still important to make sure that you understand that it's out there. It's still technically a part of your inventory, right? Until it reaches the customer's hands. The sale is not complete, right. So those are in transit. And again, you should be tracking ready for sale to allocate it to in transit. And then the next one, of course is actually the next two are pretty closely related. And those are safety stock and your seasonal. So first safety stock is something that you should always have right. Because things will are going to happen inevitably in business. We all know that things are going to happen. So it's important to have like a cushion, like a backup plan. Yeah a parachute. You don't want to jump out of the plane without a parachute, right? So that's what he's talking. Yes. And your business will die without safety. So maybe not, but it could. So it's more likely to. We'll say that for sure. So yeah it's very important to have that on hand just in those what if moments those just in case moments. Right now seasonal is a lot like safety stock. Except it is. It's more for those moments that you can plan for. Right. It's not that just in case it's. On day Black Friday. Exactly. Yeah. Yeah. Seasonal I mean so seasonal things and can even just be like if you have if you're doing a really good demand forecasting and you see that, oh, this time of March, I usually sell a lot of this particular product, then you can prepare for them, get some extra seasonal inventory for that moment. Yeah, right. So those are, I guess, the five main categories of your finished goods if you want to break them down further. So now that we know what retail inventory management is, what are the benefits exactly of effective retail inventory management I know okay. So it just it doesn't seem like a big deal. Like whatever. Like why is it so important right now? Lots of people actually care. Yeah. Why should people care. Right. But it is important because it can save you so much time and money. But, um, just retail inventory management is all about having what you need to meet customer demands, but not having too much of it that it's going to eat into your cash flow and your carrying costs and all that. Right? So it's going to save you money. Ultimately, at the end of the day, good retail inventory management, first and foremost, it's going to save you money because you're going to be reducing your carrying costs, because you're going to be keeping just the right level of inventory, and you're also going to prevent yourself from actually getting dead stock, you know, and we'll get more into dead stock in future episodes. But for now, the TLR of it is products that essentially aren't going to sell products that you have that just people aren't buying anymore. They're sitting on the shelf. Maybe you're selling like 1 or 2 a year or something, but they're just eating up shelf space, right? And ultimately eating up into your carrying costs, eating up into your cash flow, all that stuff. Right? So you want to avoid dead stock from, you know, sometimes you can't avoid it. Sometimes you think something's going to sell really well and you get it. And then just no one really wants it, right. And then other people, you try. Yeah. Exactly right. Dead stock is like it's going to inevitably happen, you know, like when you're buying something the next best thing is going to come out and then, you know, like when a new version of something, a new version of a cell phone or a new version of like a bag or a jack or whatever, that last version is going to be less desirable. People aren't going to really. Be chasing the new thing. Exactly. Only the hipsters are going to buy that old thing, right? So and there's only so many hipsters out there, right? So you got to just like to avoid it. You can use forecasting to kind of see what's selling to avoid dead stock. So you know, things like that you're going to save a lot of time. Ultimately that's a big one too. I mean, time and money are related, but good retail inventory management is all about time savings, right? Um, you don't think about it like, much like, how much time are you going to say? But it it is crazy how much time you save. Like think about here's a great example. So say I, I love to cook and I'm really quick and I'm a great chef in my own kitchen. Right. I know where everything is. I'm, you know, I'm just a kind of a whirlwind in my own kitchen. And I create something in like 20 minutes. I got a great meal. Awesome. I want to go over to my friend's house, and I want to make that meal for them in their kitchen. I have all my ingredients and everything. Same setup, except I get another kitchen and I don't know where anything is. I got to spend half my time looking for where's that pot? Where's those utensils? So it takes me twice as much time to do that. Yeah, inventory management is the same thing. If I know where things are, if I know if everything's well organized, whatnot, it's going to create a really smooth flow. And you're going to see exactly. You're going to save so much, so much time. So that's that's a big one is the time saving. And ultimately like it's going to simplify the process. The process is simple and you're saving a lot of time. That means you can scale and you can grow your business which is huge. I mean isn't that everyone's dream? Make more money? I don't think. Everyone's you know, you start off selling like $20 a day in a product and you're like, I'm happy with it. Yeah, I think I can retire on that. No, you want to. You want to grow. You want to build an empire. That's what we're here for, right? We want to build an empire. And how do you do that? You have to have a process and processes in place that are there. Good to scale. You know, essentially, that's what it's all about. And I guess lastly, the thing about. Great. Battery management in the retail space is better forecasting, right? It's all about knowing what you need, when you need it. And if you have the data to back up what you know, what you've been selling, what like how much of it you've been selling, you're going to be able to kind of, again, get what you need when you need it, buy the right products, understand your customers better. Right. So you're going to just be a well-oiled machine. You know? Yeah, there's that popular saying if you can't measure it, you can't manage it. So exactly. Yeah, that's exactly what it's all about. It's all about the numbers. So now that we know all of that, what are some best practices that business owners should keep in mind? The biggest thing is what I always tell people is to invest in an inventory management system. It's huge. It's going to save you a ton of time. Everything can like our system inflow, for example, you can do purchase orders, sales orders. You know, you can pick, pack and ship right in the app. You can use barcodes. And so you're just basically you're scanning out your items as you're picking them and packing them and shipping them off to your customers. So like doing that, all that stuff is going to save you so much time, right? A couple other big ones that are just kind of like very common in something that everyone should be doing, especially in the retail space, is is carrying safety stock. We talked about it before having it's all about having that stock at the right time when you need it in case something happens. You know, we've seen supply chain issues in the last couple of years. So I think a lot of people are now understanding that you can't always expect things to happen when they're going to happen. Things are going to always come out of the blue and messy up. So it's good to have that safety stock on hand for sure. Another big one, which is like, if people hate it, people hate it. Start a cycle count program and it's like it's very important. And even if you're using the best system in the world, there's going to be discrepancies between what you have in the system and what you have on the shelves. Right. So starting a cycle count program is really great to just kind of keep up on that, making sure those numbers are matching and whatnot. So doing that is great. And there's ways to do it that it's not so horrifying. The bigger the business, the more you don't want to do it, but the more you kind of need to do it right. So you can kind of do it in batches and sections if you really want, you know, kind of split it up into areas of your warehouse. So maybe do like this wing of your warehouse one day, this wing another day. Because when you're doing a cycle count program, you kind of have to shut down everything. The operations kind of have to stop that way. You know, there's nothing kind of we talked about how things are allocated in different buckets. Right. So your finished goods aren't moving from ready for sale into allocated while you're doing your cycle count, because it's just going to mess everything up. Right. So yeah, the cycle counts is all like scanning and keeping track of inventory levels like that, right? Yeah. It's just it's basically just counting all of the things that you have on your shelves and making sure that those numbers match what you have in your system. So it's just yeah, it's just. Faster too, like beep, beep, beep instead of like one, two, three, four and then you lose track again. Wait, what was that again? You're like marking things off. You're like you're in a prison cell, you know, which ticks. I never really thought about how much goes on behind the scenes with retail inventory management, but I was doing some research on why some major retailers failed. And do you remember forever 21 I. Yeah, I shopped there all the time. No of course, yeah I remember forever 21. Yeah. Well, back when I was in high school that was one of my favorite stores. And remember it was super popular. So I was researching into forever 21 and it's actually interesting. Backstory. Forever 21 started with two South Korean immigrants who only had $11,000 in savings, and they opened their first store in LA. And the original plan was to target younger people who didn't have a lot of money but wanted the latest looks. So they realized that they could capitalize on the fast fashion business model because they could mass produce a bunch of clothes at a very inexpensive rate. And how quick turnovers. So in 2015, they actually peaked in $4.4 billion in sales, and they had like 480 stores. But long story short, in 2017, they didn't anticipate the retail apocalypse, which is basically when e-commerce started to like dominate the market. So because of that, like they didn't stop to evaluate their plan. They just kept expanding and expanding. And if you think about it forever, 21 is as big as department stores. They're huge. Right? And because their focus was on fast fashion, they just had a bunch of excess inventory. And that led to them having to like markdown, the prices. And eventually they had to file for bankruptcy in 2019. Yes. He access inventory. It kills you. It kills you. And I mean, a lot of that probably would end up being deadstock, too, because it's fast fashion. The style was out before they can sell it. So yeah, 100%. So actually I have an example of a really great company who does amazing inventory management. I'm sure you've heard of them. Walmart. Have you heard of of course you have. Everyone's heard of Walmart. And the reason for that is because they have dominated the retail landscape over the last couple of decades. They actually put an entire retail juggernaut out of business. Kmart. So back in the 90s, there was basically what they called the the price wars that was going on. And essentially what was happening was all these big box stores were trying to compete to have the lowest prices to draw in those customers, because a lot of them were selling the same brands, the same products. So it was all about getting the lowest price to the. Customer because they're going to go where the lowest price is, obviously right. They want the best deal. It's good. Everyone wants the best deal. It's I mean that's that's a no brainer, right? So at the time Walmart actually implemented just in time inventory. Right. So it's a system all about lean, being lean, getting everything you need just in time right when you need it. So nothing's sitting on the shelves for too long. And it was a huge advantage to them. It gave them more visibility into what was being purchased by their customers, so it gave them a lot better insight. It also gave them more cash flow because they're not buying too much of things and storing them, eating up, carrying costs and all that, all that stuff. Not wonderful stuff, all that stuff. Right? And they reinvested all the money that they're saving back into the business. Right. So now they're able to expand and whatnot and they're, they're lowering their overhead by doing this as well. So they pass that savings onto the customer, which is great because it gives them then the lowest prices. Right. So they're starting to absolutely clobber Kmart. And it's all in the numbers. You can see it. And I think in the course of like 5 or 6 years, Kmart's stock dropped by like 60% while Walmart's like rose by like 80%. You could just see this really dive like in the opposite directions, you know, and it was all basically attributed to their just in time inventory management. So like it was huge. And they essentially Kmart just didn't change while Walmart did. They just kept up with the same inventory management techniques that they were using, and it crushed them and absolutely crushed them. They end up having to sell their company to Sears, I think in 2005. Yeah. And that was the end of Kmart. I was actually looking to Sears as well. And why it failed, because I remember Sears was really big when I was young, two and one day just disappeared. And apparently one of the biggest mistakes that Sears ever made was buying or merging with Kmart, because back then Sears held like a unique position in the market. But as soon as they merged with Kmart, which was known as a deep discount brand, it lowered their value and that put them into direct competition with Walmart and Target. And at the same time, other specialty upscale stores like gap posed a huge threat to Sears because, you know, no one really brags about, oh, I'm wearing like, Sears clothes or whatever. But like back then when you wore gap was more exclusive and more like cool. So because the company sales dropped like crazy, the suppliers straight up just stop supplying like TVs, books, toys and everything to Sears because they're worried that the retailer won't be able to pay its bills. So yeah, towards the end of the day, they got cut off. Yeah, they got cut off hard. Yeah. Just like suppliers. Just stop sending stuff to Sears. And then the inventory was super low and empty, like just poorly stocked. And that's why series died. Yeah. I mean, yeah, they picked up a sinking ship, you know, and you're saying that it it put him it pitted them against Walmart. Don't do that. Don't don't do that. Walmart's inventory management is on point. You know it's just interesting how like your reputation how that affects your business too. Like even if Sears has good products. But people see you as like a low discount or like you're kind of like you're stuck in the middle, like that's a danger. You're not you're not like budget enough for like people who want good deals. But then you're also not, like, expensive enough to be like, trendy, a bit of an identity crisis. Yeah. Just like in the middle. Like, who am I? Yeah, who am I, where am I? What is the meaning of all this? Yeah. Exactly. Yeah. So I mean, another example of Walmart's great inventory management is that they use RFID stands for radio frequency identification tags. So what it is essentially they're barcodes that are like. In the air, in the clouds, the radio frequencies. Right. So you can actually scan items without having a line of sight. And it's great for obvious reasons, for, for Walmart. So they've mandated that coming up in February for like a whole bunch of they've had some mandates on some product types, but they're mandating it for almost just about every product type coming up in February. So they're not messing around when it comes to inventory management. If you want to sell your items through Walmart, you better, you know, get it. You better hop on the inventory management bus because, you know, we're headed to Organization Town, baby. Yeah. I remember talking to one of my friends. They work at Uniqlo, and I'll just ask them like, oh, how does Uniqlo manage their inventory? And they mention RFID as well. Like they just have this RFID gun. And if you're looking for a specific size and color, like a dog finding drugs, oh. Yeah, it's like boop boop. Boop. Yeah, finding metal on a on the beach kind of thing. Yeah. No, I love Uniqlo too. They actually utilize not just for their inventory management. They actually utilize the RFID for checkout too. Yeah. You just go to the checkout and you dump all your stuff into a box. Yeah. And it just some like, magic, baby. Just like all of it gets rung up immediately, which is super, super cool. Need people to manage it. Just all self-checkout. Yeah. It's, uh, people are just gonna be obsolete soon, you know? But no, it's great for. It's a dual purpose, right? So it's great for inventory management. And it's also great for, like, actually checking out the whole process. It kind of can take a, take a, a pardon, which is pretty really, really awesome. Yeah. The first time I saw that shackle system was actually in Singapore. There's this huge sporting goods store called decathlon, and they use that same checkout system, and they recently opened up stores in Canada too. I don't know why everyone doesn't do it, to be perfectly honest. I would love, uh, you know, I think, um, the Amazon store, if they have those Amazon Go stores where you go in and it makes you feel like you're stealing everything because you just kind of walk in and you pick things up off the shelf, and then you walk out, and then it just charges your, your card because, uh, yeah, I think that I think I'm pretty sure they use RFID for that. So they're like basically tracking what you're picking up. And then as you leave it kind of like, you know, puts it onto your Amazon bill or whatever. Yeah. So it does make you feel like you're stealing though for sure. Yeah. It's kind of weird, like, don't I need to talk to someone about this, but yeah, you just leave in the everything's all good. So. Yeah. So that wraps up our episode. Thank you guys so much for tuning in and interested in learning more about inventory management? Make sure to subscribe on Apple Podcasts, Spotify, YouTube, or wherever you listen to your podcasts. Yes! Thanks so much for listening. Watching. However you're consuming the content, please share with your friends, your family, your coworkers, your pets, whoever you think would be interested. Leave a comment down below if you want. If you have an idea for a future episode, please leave a comment down below and we will do our best to get into that in a future episode. Okay, bye.