There is a general consensus that a stock turn rate of 3-4 is good for bookshops. Although, it is possible to run shop on a stock turn of only 2. To calculate your stock turn, find out your total annual sales and your average stock level (at retail value, not cost).
If you sell $100,000 of books per annum then:
$25,000 of books in stock (retail value) would equate to a stock turn of 4
$33,000 of books would equate to a stock turn of 3
$50,000 of books would equate to a stock turn of 2
$10,000 of books would equate to a stock turn of 10
If your stock turnover is too low, that means you have too much money tied up in books on the shelves, and your shop will start to look tired – customers will keep seeing the same stock.
If your stock turnover is too high, (eg. 10), then you are probably losing sales because of low stock levels – not enough diversity of books to interest all your customers.
Calculating stock turn ratios is a good way to monitor your stock levels and decide to reduce or increase your inventory – or motivate you to increase your sales.
However, it is also true for smaller shops that simply looking at your shelves and talking to your customers will quickly reveal if your stock is looking tired or if the cupboard is bare…
For a more detailed introduction to stock turn rates, Retail Times have produced a very clear and succinct article explaining the stock turn rates and their significance.
Hi Karl,
That’s a good article. As it notes, sometimes in the desire to get stock turns up, people can try to carry only the fast-movers. However, customers want to feel that they had a decent range to choose from, even if they just end up buying one of the faster-movers.
One point to do with the target of 3 to 4 stock turns: in every industry I’ve worked in (except one), we calculated stock turns as COGS/SOHAC i.e. Cost of Goods Sold / Stock on Hand at Cost. (This is equivalent to your Sales/Stock-at-Sell-Price). However the one exception I’ve found is the Australian Christian Bookselling Industry. Here, I’ve repeatedly come across a hybrid “Sales/Stock Ratio” which is Sales divided by Stock at COST.
Three examples:
The former manager of a largish Christian bookshop told me that his target was 2.8 i.e. $2.80 of sales for every $1 of stock at COST. [Figures exclude GST]
A friend who worked for Open Book said their chain’s goal was 3.25 i.e. $3.25 of sales for every $1 of stock at COST. This was better than the target of 2.8 in the previous example.
The CBAA website uses this same (hybrid) measurement, where its Bookshop Health Checklist states that the ideal “Stock holding to sales ratio is usually 30% i.e. if your total annual sales estimate is $200,000 then you will probably need $60,000 in stock (at cost).” This is equivalent to a stock/sales ratio of 3.33, which is better (tougher) than either of the previous two examples.
However, even this target stock/sales ratio of 3.33 is nowhere near your target of 3 to 4 stock turns. Using the CBAA’s example:
The bookshop’s sales (excluding GST) are $200k. Assuming an average margin of (say) 40%, its gross margin is $80k and its Cost of Goods Sold is $120k. As it has $60k of stock (at COST), then its stock turns are only 2.0 (for a stock/sales ratio of 3.33).
I know that secular bookshops in Australia do achieve stock turns of 4.0 or even 5.0 – I’ve got a Govt study that shows that. They do this by having large sales of Front-List titles. However, I’m not sure how many Australian Christian bookshops achieve stock turns of even 3. That would require a shop with sales of $200k (and COGS of $120k) to carry only $40k of stock (at COST).
What have other people found on this point? What is your experience as to what actually is achievable in Australia?