Retail Definitions:
Stock-to-Sales Ratio
The Stock-to-Sales Ratio shows the relationship between the beginning-of-month (BOM) inventory and sales for that same month. This ratio usually changes over the course of a given year, as in some months you will be stocking up for a holiday or promotion while in other months you will be liquidating inventory to prepare for a new season.
Calculating Stock-to-Sales Ratio
As its name implies, this is a fairly straightforward ratio, as follows:
This important ratio is key to planning merchandise buying over time, and we look at it prospectively (before a month starts) and retrospectively (after a month ends).
Forecast (planned) Stock-to-Sales
The forecast Stock-to-Sales tells us the amount of inventory needed at the beginning of the month to meet a given sales plan. This projection gives a retailer a target to hit in terms of where their buying needs to be in order to meet their goals. The ratio will be higher early in a season, when building inventory.
Example: If the Plan is to sell 1,000 pairs of socks next month, and the stock to sales ratio is 3.0, then we want to have 3,000 pairs of socks in stock at the start of the month.
History (actual) Stock-to-Sales
The retrospective view reveals how much inventory was available at the start of the month for the sales that actually occurred. This can be important for informing a retailer's approach going forward, and for assessing whether they are working the merchandise plan correctly.
By analyzing trends in your retail data expressed through Retail ORBIT®, our certified M1 Retail Experts can offer knowledgeable advice on how to optimize your stock-to-sales ratio.