Retail Inventory Management: Definition & Best Practices

Cody Cromwell
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How Retail Inventory Management Works

When an online retailer sells its products to end-customers, the retailer’s primary concern is how the shipments of products get delivered to those customers.

Inventory management involves ensuring that the right products reach the right customers, on time to meet demand.

Inventory management involves delivery, fulfillment, and revenue. It gets a lot more complicated, but you can think of it as a simple supply and demand equation. If you envision two boxes of product, customer and product, it’s pretty straightforward. But with millions of products, the system for managing inventory around the world is more dynamic and complicated.

Inventory management is a process to control whether the right product reaches the right customer at the right time and at the right price.

Inventory management can be practiced any number of ways:

Physical inventory management – this is a manual approach with an inventory management tool for tracking inventory. Most retailers utilize this method.

Inventory control – this is an automated inventory management approach where companies use software solutions.

A combination of the two – retailers with a physical inventory management tool may track inventory using software tools though.

There are four key concepts to understand about inventory management:

Inventory is the amount of goods a company has on hand or carries in stock at any given time.

Retail Inventory Management in 7 Easy Steps

Inventory management in retail establishments used to be a hassle. This is especially true for products that were very perishable, such as fresh food. Before the advent of barcode tracking technology and inventory management software, inventory accuracy and costs just grew out of control.

Then barcode tracking and inventory management technology came along and drastically improved the industry. But even today, there are still plenty of inventory management situations that need to be juggled between many departments to ensure the most optimal use of inventory in inventory management software.

Hopefully, this introduction to the Retail Inventory Management discipline can help you understand how these 7 steps can improve your retail management skills and better maintain a low-cost inventory environment.


One of the best ways to keep inventory costs low and accurate is to have a well-planned nutrition plan. This ensures that the product is always in stock. You also have the benefit of inventory trimming and plan analysis.


A well-known retail slogan is: …Consistency is key.……but this is particularly the key to an accurate inventory system. Consistency helps you avoid wholesale costs. It also helps you avoid the stocks of varying quality or shelf stability and ensures that you’re only carrying the goods that sell.

Track & Maintain Accurate Product Data

A well-maintained inventory typically contains all of the product data needed to keep track of inventory at the retail store or warehouse. This includes accurate pricing, item description, expiration dates and the amount on hand. You’ve likely read that this information is a critical component of a retail inventory management system, and you’d be right. Without the appropriate product data, the retailer can’t count the appropriate inventory levels correctly. This will lead to inaccurate calculations in inventory reports.

On top of keeping accurate inventory data, retailers and manufacturers have to deal with keeping track of the inventory levels in order to determine when an item should be ordered for re-order. Since product data is so critical, retailers and third-party logistics companies (3PL) have implemented systems to monitor inventory levels. This inventory monitoring system is known as barcoding. Barcoding uses a series of numbers to represent a product.

Track Where You Store & Display Stock

Retail inventory management is a process that involves making sure that the store has enough inventory to meet its sales goals. But the biggest challenge is making sure you track and manage your location by space or product. So if you want to make the most of your store’s inventory and stockroom space, you have to get your inventory management processes down to a science.

In the rush of the holiday rush, inventory management and location tracking are usually the first thing to get pushed to the backburner, but it’s extremely important to your store’s success.

Many stores neglect to track their location by space or item. Also many stores do not use a system that is capable of tracking location by space. With the help of technology in the right place, you can quickly and accurately track your inventory. With an approved inventory management software, the inventory management process can be streamlined.

Let’s look at some of the benefits of tracking your inventory by space and location.

Maintain Accurate Stock Counts

Whether you’re a professional dealer or a home hobbyist, keeping accurate retail inventory tracks is an absolute must.
Special tracking numbers are used to track each individual product and to verify that each product has been sold and has been officially recorded in the inventory. This is especially important if you sell online or through a mail order company. A good online retailer will require that you maintain the appropriate SKU’s for each of your products.

If your inventory has become inaccurate or if you are having problems with product oversight, it is important to check stock counts on a regular basis. If you find that a product has not been properly counted or that it is missing from the count, it is important to report this to your retail broker as soon as possible.

If you are working with retail kiosks, it is very important to ensure that each product is counted on a regular basis because kiosks do not have the same level of oversight or monitoring as traditional retail setups.

If you are a hobbyist who works at retail by the kiosk, it is also worthwhile to track inventory. If you have a good system in place, you will be able to keep a close watch on inventory and eliminate any problems before they happen.

Make Data-Backed Purchasing & Promotional Decisions

Retail sales and services depend on accurate merchandising, pricing and promotion. Without an up to date inventory management system, you cannot put forth accurate pricing, promotions and order fulfillments or you could lose sales.

In fact, an average of 67% of all profits will be lost due to incorrect pricing and promotions either before or after the sale. A scary statistic, but retail organizations that support their merchandisers with accurate, up to date inventory systems can improve their bottom lines with reworked pricing.

The Importance of Data at the Item Level

One of the major benefits of using a data-based inventory management system is the ability to make all decisions with the data at the item level. With other merchandising systems, your assumption is that your inventory will always be in stock. In other words, you never have the full picture of the amount of stock you actually have and can make any decisions based on that misleading view.

A data-based inventory management system can ensure that you have the correct amount of stock at any given time. You can use this information to make decisions based on actual information and not a forecast or assumption.

Record Stock Receipts Correctly

You have to do well to stock the new products quickly enough for the customers to get them. The gift card is also very useful for you. You can use the gift card, when you can come with the stock inventory. Managing stock inventory efficiently can help if you do continuous business. For example, it can help you to avoid inventory theft.

If you do record it correctly, you can save much time for entering down the information and it will be easier for you to enter data such as customer and product information.If you are going to do inventory control, you can write down the item number. It is an important thing to note that you need to write down the inventory information from the time of purchase to the time of sale because it plays a crucial role in the retail inventory management, especially if you are going to create a scrap book from your stock inventory. You can add specific heading such as date, customer, product name, and price.

It will help you know about inventory activities easily. For example, you can keep it when you check the receipt and record the time of sale.

Record the Inventory Activities Accurately

You will record all the information in the right way properly. If you are going to record the inventory activity, you need to keep similar records. After all, you cannot do the same thing twice.

Handle Damage, Defects & Supplier Returns Quickly

& Properly Retail inventory management is a process for managing and tracking inventory .

This is a management function which is not a part of the financial statement's audit activities (however, it involves some accounting concepts, such as accrual basis).

The main purpose of inventory management is to ensure that there is enough stock of a product or item in the warehouse and that the correct quantity is available for sale.

To achieve this:

Warehouses are required to keep track of the number of items stocked in the warehouses (stock), which can be calculated using a simple formula of stock divided by the number of locations where the item is sold; known as the Total Receipts per day [1].

More generally, the stock levels are adjusted as the shifting demand for stocks. As sales drop, the stock needs to be reduced.

Understand Small Business Retail Inventory Metrics

Retail inventory management is critical in retail stores, stockrooms, distribution centers, and all other retail locations due to the high risk involved in handling inventory. When properly handled, this risk can become part of the retail business’s business model.

This risk is largely due to the fact that retail inventory can inflate the cost of a product through spoilage, damaged inventory and waste if not managed effectively. Additionally, keeping proper inventory in stock can help to speed up the time it takes to supply customers as well as store shelves.

For these reasons and more, retail inventory management is a critical function. In this post, we’ll look at the underlying principles of inventory, best practices, and the metrics that retailers should be tracking to understand their inventory and supply chains.

Bottom Line

This is a brief overview of the reasons retail inventory management is a key component of your business accounting records.

Push distribution centers to meet retailer’s demand

A retailer’s supply chain…more specifically, their inventory management system …should allow them to make decisions that increase the efficiency of their supply chain and help them minimize shortages.

Inventory is the center of attention for managers in every company. Retailers’ supply chain and its efficiency directly affect the firm’s ability to satisfy their customers. To control inventory levels at the retailer’s fulfillment centers, retail managers rely on the process of using just-in-time inventory management.

For example, considering a highly fashionable store…you’ll see how the risk of shortages is minimized through close cooperation with the manufacturing base. To keep demand in check, the retailer may need to work closely with their local distributor to keep a physical inventory in their fulfillment center or one of their cheaper alternative distribution center locations, such as a regional distribution center (RDC).