Ultimately, retail is a money-making business, and focusing efforts on what will give you the greatest margins and maximum return on investment is key. An understanding of stock turn and putting good stock management into practice should be top of your priorities. It’s fundamental to good retail, and not just in the golf industry.
Increased Stock Turnover = Increased Profitability
Stock turnover is a simple ratio that you can use to ensure you are managing your shop’s stock well. But why? And should you care?
“Yes, it’s really something you should understand, and care about”, says Mark Hopkins, retail expert and business development director at Crossover Technologies, who visits PGA Pro’s around the country each week. He says, “If you’re a stock-based business, managing stock efficiently is crucial to your profit and success. Knowing your stock turn ratio, will give you an idea of your business’ efficiency.
Mark continues, “Very basically, to work out your number, you look at how many times during the year that you sell and replace (turnover) your stock. It’s an indicator of how fast the stock sells on average and ultimately, how healthy your business is”.
Is there a Magic Number?
Stock turn analysis is based on the year’s-worth of sales. Stock ratio varies by industry and it’s good to keep an eye on how other golf shops are performing in your area. In the UK golf industry, we’d expect a good retail business to want to work towards turning over (selling) stock items 3-4 times each year but this does vary by category. Custom-fits might have stock turnover of 6 or 7, and other items would be lower than 3.
The higher the stock turnover, the more the stock is replaced, which means the Pro shop is more efficient. But it’s a balancing act: If stock turn is too high, it might indicate you aren’t carrying enough stock. If you buy in a golf bag and it takes a year to sell, it has a stock turn of 1. If you’d sold that golf bag within a short space of time (say, 3 months), and made 30% profit, you could have reinvested that, and bought another golf bag … and sold that, reinvested the profits ... sold again, reinvested the profits. Do that 4 times a year across your product range, and you’ll be running a good business.
Products sitting on shelves is money tied-up. Old stock becomes costly and you don’t want to be left with a lot of merchandise at the end of the season, that you have to knock down in price in order to sell.
Successful stock control is about managing the balance between the right amount of merchandise and profitable customer demand. Too little stock could mean you are unable to respond quickly to customer requests, leading to missed sales or unhappy members. But over-stocking could lead to lower stock turn and will limit your cash flow.
Tips to Keep Stock Turning
Keep your stock turn levels high by running sales reports by product line on a weekly basis; work with suppliers to deliver fewer items more frequently; cancel pre-books if the initial orders aren’t selling; hold flash sales to keep older stock turning over and free up cash.
For great retail practice, know your stock turn ratio and use that to make better buying, and business, decisions in the future.