Anumber of factors influence the amount of stock retailers hold: store size, the proportion of chilled products on sale; rate of sales and deliveries; and commitment to promotions. But vital statistics aside, there are very different schools of thought when it comes to stockholding. While some retailers are convinced that low is the way to go, others believe that high is the way forward.
Kevin Hunt, managing director of Spar retailer Lawrence Hunt & Co, adopts a basic formula on stockholding. “It is different on every line and department depending on delivery frequency if we hold three weeks-worth stock it’s an average based on the total value against weekly turnover,” he says.
But some retailers take a more forensic approach to stockholding. James Brundle, a Spar retailer in Walthamstow, East London, reduced his stock levels after undertaking regular stock-checking. “Most stores do stocktakes every six months, but we’re doing it every month to tighten up,” he says.
James and his co-owner calculated that nine days-worth of stock was the optimum level or about 30% more than they sell. “If we’re selling £37,000 a week, we should be holding £42,000-worth of product. We have limited space so it’s a cash flow thing. We try to limit the stock coming in, but aim to make the store look full.”
The new strategy, implemented about eight months ago, has boosted gross profit to about 30%. James says that now he never needs to change stock levels.
For Jinx Hundal, a Norfolk-based Budgens retailer, stock levels are one of the most important operational elements of running a c-store. “It both impacts the customer and the financial cash flow of the business, and quite significantly if it goes wrong.”
With Musgrave supplying six deliveries a week, he believes in using them to hold stock and using his stock room only for fast-moving or promotional ‘red dot’ lines. As a general rule, he gives his team a target to hold seven days’-worth of ambient stock on all lines. This is made easier by a very good epos system, which highlights the quantity of stock on site and the number of days it will last, based on the past 28 days of sales.
“The only exception to this is that they must ensure weather patterns and local events and promotions are taken into account and thus manually overridden,” Jinx adds.
Jim Leese of Londis in Chorlton Down, Dorset, also prefers to use his supplier as storage. “I fundamentally don’t have stock in the back of the shop, just residual stock; very little goes out the back.”
He says he would even consider a zero stock policy in the right circumstances. “To go zero stock you need to rely on a good supply chain and have spare capacity on the shelf. For example, you need sufficient space for a 24-case of beans. Your re-ordering triggering point would be six. I think it would be perfectly do-able,” he says.
In contrast, Bimal Patel holds high stock levels of between two and three weeks’-worth at his 2,000sq ft Londis store in Crouch End, London, because he likes to offer promotions. “If I order in bulk I get a better price so can pass savings on to customers, and everyone’s looking for deals at this time of year,” he says. “But it depends on your storage space smaller stores don’t have it and so try to keep stock levels down.”
Paul Cheema, a Costcutter retailer in Coventry, carries about 50% more than he sells at his Malcolm’s Stores, in order to keep up with demand and to send a positive message to customers. “We have three weeks’-worth of stock, mainly in ambient products, as we’re a high turnover store. We cater for many corporate events so need to be prepared, and we like to keep prices low so it’s best to buy in bulk,” he says. “Also, with weather like we’ve had this winter, people know we’ll always have full shelves.”
Paul and his brother Pinda operate an active marketing campaign and send out 13,000 leaflets to residents every three weeks, so high stock levels keep them prepared for a potential surge in demand resulting from their PR drive. Ultimately, Paul says, high stock is a sign of confidence. “We never end up with dead stock. It’s about having confidence in what you do. Lots of c-stores are afraid of carrying stock.”
For Nisa retailer Kishor Patel, it is also about being flexible. He stocks about twice as much as he turns over at his Nisa stores, but operates an adaptable system. “Our general principles are to maintain adequate stock levels to ensure shelves are full and to maintain availability. We don’t have a company-wide stock level rule like some; it’s up to the store managers to adjust accordingly, especially with seasonal products.”
As an example, Kishor says a store turning over £45,000 would hold about £100,000 in stock. “If we bring it down to £70,000 we will end up with too much space at the backs of shelves and it won’t look right. However, there is only so much you can fit on the shelves and in storage, so we could only have a variation of 15-20% in stock levels.”
Kishor has seven stores, which means he has the luxury of moving stock between them if necessary. But he also recommends that retailers under the same symbol group help each other. “It wouldn’t do any harm if nearby stores swapped stock. There’s a Nisa forecourt nearby with which we swap products regularly.”
While maintaining close relationships with both suppliers and neighbouring stores can undoubtedly help retailers manage their stock, it seems that there is no definitive answer to how much product you should actually keep on the premises. What is worth bearing in mind, though, is that there is more than one way to achieve results, so be sure to consider all your options before deciding which system is best for you.