Are there any guidelines for selecting the inventory for a retail outlet?

Are there any guidelines for selecting the inventory for a retail outlet?


Your selection of merchandise is what will set you apart from other shops. Your decision to go into retail was based on the desire to meet an unmet need. Don’t lose your focus and undermine all the effort that went into planning by buying any old thing.

Product selection is all about positioning. It’s one thing to stock every item in a category; it’s quite another to selectively choose those products that enhance your reputation. “Successful inventory forecasting and management comes from being in the business”, says 20-year veteran hi-fi sales and service retailer Jim O. in Sandton.

“There are no shortcuts or formulas. In the beginning, we went to the manufacturers’ reps and asked them what the most popular items were and what was selling. Now we go to home theater forums on the Internet to see what people are talking about. We look at the market and what others are doing. There’s so much competition–and the margins on fast-moving popular items are narrow–so you have to stay alert. This is true of any type of inventory, not just ours.”

Establishing your inventory

Here is a simple procedure to follow to help you decide which merchandise you should offer and which you should not. If you are dealing with electronics or clothing, you may wish to do your breakdown based on brand names.

If you are organising a food business, simply list the food supplies you would have on hand the day you open.

We asked a motorcycle dealer to explain how he would use this model.

  • Divide your inventory into broad classifications, such as R30 000 for motorcycle spare parts.
  • Divide each broad classification into sub-classifications–for example, engine parts, wheel parts, frame parts, transmission parts, dress-up parts, drive-line parts, and tune-up parts.
  • Allocate a certain percentage of your capital to each sub-classification-for example, 20 percent engine parts, 5 percent wheel parts, 5 percent frame parts, 5 percent transmission parts, 30 percent dress-up parts, 10 percent drive-line parts, and 25 percent tune-up parts.
  • Locate resources that will sell you the products you want to stock. Read Car Auto Trader, Wheels, Top Gear and Speed and Sound magazine.
  • Make sure each item purchased gives you the best possible mark-up and that the retail prices will fit the price lines you have set for your operation. The shop’s target mark-up is 50 percent on services, 40 percent on accessories and clothing, and 35 percent on hard parts.

You only have so much money allocated for merchandise. The challenge you face is to achieve maximum sales from what you buy. By first determining how much of what you are going to buy, you discipline yourself to be discriminating and to keep your buys in balance with your overall inventory needs.

Faced with an enthusiastic salesperson, an attractive deal and a hunger to buy, you need all the will you can muster to remember your priorities. Overstocking in one area at the expense of other areas is a dangerous proposition. Take your buying plan with you and stick to it.