The number of times the entire assortment is sold and replaced within a specific period, used to evaluate inventory efficiency and inform buying decisions.
What is Assortment Turnover?
Assortment turnover is a retail metric that measures how quickly a retailer sells and replaces its inventory. It helps determine the efficiency of inventory management and identifies top-performing products. A higher turnover indicates efficient inventory planning, reduced costs, and better profitability. It aids in optimising inventory levels and improving customer satisfaction.
How Assortment Turnover works
- Calculation: Assortment turnover is calculated as COGS divided by the average inventory value. COGS represents the total cost of the products sold during a specific period, while average inventory value is the average value of inventory over the same period.
- Efficiency indicator: Assortment turnover is an indicator of how efficiently a retailer is managing its inventory. A higher turnover ratio suggests that products are selling quickly and inventory is being replenished in a timely manner.
- Performance evaluation: Assortment turnover is used to evaluate the performance of different product categories, brands, or individual items. It helps identify the best-selling products and those that may be underperforming.
- Inventory optimisation: A high assortment turnover indicates that inventory is moving quickly, minimising the risk of excess stock and obsolescence. It allows retailers to optimise their inventory levels, reduce carrying costs, and avoid stockouts.
- Seasonal variations: Assortment turnover may vary based on seasonal demand patterns. Retailers need to consider the seasonality of their products and adjust their inventory strategies accordingly.
- Benchmarking: Assortment turnover can be benchmarked against industry averages or competitors' performance to assess how well a retailer is managing its inventory relative to others in the market.
Overall, assortment turnover is a crucial metric in retail that helps assess inventory efficiency, optimise stock levels, and improve overall profitability.
Pros of Assortment Turnover
- Inventory management: Assortment turnover provides valuable insights into the efficiency of inventory management. A higher turnover ratio indicates that products are selling quickly, reducing the risk of overstocking and inventory obsolescence. It helps retailers optimise their inventory levels and maintain a healthy balance between supply and demand.
- Sales performance evaluation: Assortment turnover helps evaluate the sales performance of different product categories, brands, or individual items. It identifies the best-performing products that contribute significantly to sales and profitability. This information enables retailers to make data-driven decisions regarding assortment planning, pricing, and promotional strategies.
- Profitability improvement: A higher assortment turnover is generally associated with improved profitability. By selling products quickly and efficiently, retailers can generate higher sales revenue and achieve better margins. It also reduces carrying costs and the need for markdowns or clearance sales. Ultimately, improved profitability contributes to the long-term success of a retail business.
Cons of Assortment Turnover
- Limited product variety: Focusing solely on assortment turnover may lead to a narrow product selection. Retailers may prioritise fast-selling items and overlook slower-moving or niche products that cater to specific customer segments. This can result in a less diverse assortment, potentially missing out on opportunities to meet the unique needs and preferences of certain customers.
- Overemphasis on short-term performance: Assortment turnover primarily measures the speed at which products are sold, which may encourage a short-term mindset. Retailers might prioritise immediate sales and overlook the long-term potential of certain products or categories. It could hinder innovation, product development, and strategic planning that require longer-term investment and customer cultivation.
- Potential stockouts and missed sales: Striving for high assortment turnover may increase the risk of stockouts, where popular products run out of stock due to their fast sales. While stockouts can create a sense of urgency and exclusivity, they can also lead to missed sales opportunities and dissatisfied customers. Maintaining an appropriate balance between assortment turnover and inventory availability is crucial to avoid stockouts and maintain customer satisfaction.
Below you will find answers to common questions
How can I improve assortment turnover without sacrificing product variety?
One strategy to improve assortment turnover while maintaining product variety is to analyse and optimise your product mix. Identify the top-performing products that contribute significantly to your sales and profitability. Focus on replenishing those products more frequently to meet demand while considering other complementary products that can enhance the overall assortment. By strategically managing your assortment and leveraging data-driven insights, you can strike a balance between assortment turnover and product variety.
What should I do if certain products have low assortment turnover?
If you have products with consistently low assortment turnover, it's important to evaluate the underlying reasons and take appropriate actions. Start by analysing customer demand and preferences for those products. Determine if there are any external factors affecting their performance, such as seasonality or changing market trends. Consider implementing promotional activities, targeted marketing campaigns, or assortment adjustments to drive interest and increase sales. Additionally, closely monitor and manage inventory levels to avoid excessive stock that could hinder assortment turnover for other products.