Retail Inventory Data Analysis
Understanding Retail Inventory Data.
Inventory Per Square Foot.
Inventory per square foot is similar to sales per square foot. This metric measures how much inventory in dollars is allocated to the gross or net selling square footage within a store.Higher levels of inventory will raise the inventory per square foot metric. Thus, the lower the inventory per square foot allocated the better. This would mean a retailer is tying up less dollars in inventory for the amount of gross or net selling square feet per store.
Days Inventory Outstanding (DIO)
Days Inventory Outstanding (DIO) is a metric that measures how long it takes inventory to be replenished. A decrease in DIO is an improvement while an increase is a deterioration. The higher the DIO figure, the more cash that's being tied up in inventory. Let's consider a living example. The mass merchandise chains of Kmart, Target, and Walmart. Walmart has the lowest Days Inventory Outstanding at 48.2 days for 2004. This means they are turning their inventory over about seven times a year ( 365 days / 48.2 = 7.48 turns ). In contrast, Kmart's DIO is 80.5 days which means their inventory is turning only 4.5 times per year. Thus, Walmart's inventory is being replenished more quickly and efficiently which does not tie up as much working capital.
This formula is calculated as follows:
Days Inventory Outstanding = Inventory / ( Sales / 365 )
Days Inventory Outstanding = Inventory / ( Cost of Goods Sold / 365 )
Inventories-to-Sales Ratio (ISR)
The inventory-to-sales ratio measures the descrepancy of a retailer's inventory to its sales volume. The higher the inventory-to-sales ratio the greater the amount of inventory on hand which means that a retailer sales are stalling. In general, it may indicate a situation where sales are being lost because a retailer is understocked and /or customers may be buying at a competitor. This problem can usually occur when a retailer orders more merchandise than it can sell. If a retailer's inventory is too low, this may show that inventories are obsolete or stagnant.
Retailer's need to keep their inventory-to-sales ratio as low as possible. The ISR is caluclated by dividing a retailer's average inventories by average sales. This figure can be calculated on a quarterly or annual basis.
The formula is as follows:
ISR = Average Inventories / Average Sales