Retail inventory management is a systematic arrangement where a business ensures that it stocks up on the products that customers want without over-purchasing them or having too little in stock.

As a retailer, the last thing you want is for customers to order a product that’s out of stock. Even worse, having to tell your customers to wait for restocking. When it happens more than once, it taints your business's reliability and brand. As such, you want to ensure that you have enough stock as a retailer to meet your customer's demands.

Additionally, you have to make sure that the products in the store haven’t expired, which means that you can't overstock since should business be slow, some stock may expire while still on the shelf. Therefore, retail inventory management uses intelligent purchasing, pricing, and promotions to stock and sell the goods at a profit to ensure the business remains sustainable.

Good inventory management helps companies to reduce costs since the business orders only what’s enough and sees to it that they sell at a profit. Therefore, it also helps the retail business remain profitable while still satisfying your customers.

Here are some of the best five practices you should consider for your retail inventory management.

1. Implement ABC Analysis

The ABC analysis is a method where you organize your inventory in a hierarchy from the most important products to the least important items.

Items placed in category A are those that sell the most, and hence they require regular recording, including checking on their condition and qualities. These items are therefore considered the highest priority inventory.

The next category is B. Items categorized under B are of value, but they have a medium priority. Therefore, these items are ordered once a month. The last category is C, and it's for low-stock priority inventory. Since their demand is relatively low, these items don't need to be ordered frequently, so they don't need regular recording. Therefore, items in category C are ordered in high volume to save on expenses.

Organizing your stock using the ABC analysis helps you optimize space in the warehouse. It also makes it easy to be able to know where the specific stock is, therefore streamlining the fulfillment process.

2. Set KPIs

Key Performance Indicators (KPIs) is a system used to measure performance over a given period to help you achieve your goals.

When setting KPIs, you'll need to have specific milestones in mind and a period in which you should have hit the milestones. The time could be weekly, monthly, or annual basis. Some of the KPIs you can consider for your retail inventory include:

  • Inventory write off
  • Inventory write down
  • Carrying cost of inventory
  • Order Status
  • Rate of inventory turnover
  • Fill rate, among others

The data you collect from your retail inventory will help you make informed decisions about your business. For example, your set KPIs rate of inventory turner will help you know how many items you should stock up on.

3. Invest In An Inventory Management System

Managing your inventory manually can be pretty tedious and time-consuming. As such, it's common to make errors that would have otherwise been avoided if you were using an automated system like an inventory management system.

Managing your inventory manually can be pretty tedious and time-consuming
Managing your inventory manually can be pretty tedious and time-consuming

A good inventory management system will help you understand how your inventory is moving and growing. It’ll also free you and your team members, helping you attend to other pressing tasks. In so doing, the overall productivity of your business is boosted.

Other than investing in a good inventory management system, there are other tasks you should consider automating:

  • Bulk actions for high-order volumes
  • Enhance selling your products across multiple channels
  • Track your revenue, business expansion, and other goals
  • Enhance customer experience
  • Track your fulfilment process

4. Have A Safe Stock Inventory

Safe stock inventory is stock that you keep to protect yourself from market demand and supply shifting status. For example, a safe stock will come in handy if there's a reduced supply of the products you deal in. The safe stock shouldn't be too much, just enough to help you ride the dip in market supply.

A safe stock inventory protects you from:

  • Unexpected market demands
  • Unexpected shortage in supply
  • Unforeseen stockouts

In doing so, you have to:

  • Maintain your revenue, customers, and business
  • Maintain your market share
  • Have a buffer to protect you from unforeseen longer-than-expected market dips.

5. Keep A Record Of Stock Receipts

Even in an ideal situation, it's normal for a stock to have damages or for suppliers to make errors like understocking or overstocking. Therefore, you can't leave all the work to suppliers. You can come up with a structure to record stock receipts.

Use the stock receipts to compare products against the purchase order. Ensure that all products are in good condition and that the supply is as ordered. If there are damages or supply shortages, follow up with your suppliers.

A good record of stock receipts will help prevent:

  • Paying for items you didn't order
  • Incurring the cost of damaged products
  • Overstocking and understocking
  • Underpaying your suppliers


Retail inventory management is a systematic arrangement where a business ensures that it stocks up on the products that customers want without over-purchasing them or having too little in stock. This system helps to ensure that you don't run out of stock or don't overstock in an attempt to meet customer demand. It also sees that you make profits and that your business grows and remains sustainable. If you want to implement a successful retail inventory management system, consider the five best practices discussed in this article. All the best!