Inventory Reporting: What it Is and How to Use it for Your Retail Business

In retail, inventory and sales reports hold a wealth of information. But nearly half of small businesses either don’t track their inventory, or they use a manual method to do so. 

This makes retailers susceptible to inaccurate reporting. While that may seem insignificant, when you’re using data to inform business decisions, it could be the difference between tanking and having a successful sales period.

Below, we’ll take a look at what an inventory report is, as well as how to create reports to improve your retail business.

What is an inventory report?

An inventory report is a summary of a retailer’s existing stock. It distills details like how much stock you have, which products are selling fastest, category performance, and other information about the status and performance of inventory. There are many types of inventory reports you can use, each serving its own purpose. 

Why should you generate an inventory report?

“Inventory reports are important to monitor the biggest and most expensive asset of your business,” says Elliot Walters, implementation manager at Stitch Labs. Retail businesses rely on inventory to generate revenue and profit — without it, you don’t have anything to sell.

The value of inventory reporting mainly boils down to the insight it gives retailers into their business. The industry’s top performers are data-driven, and inventory reporting metrics provide both big picture and hyper-focused views into the business. 

“Retail is an art and a science, and inventory reporting is an important piece of that science,” says Chris Guillot of Merchant Method. “They help you tell a compelling business narrative that’s backed by data. That data doesn’t have to be ‘big data’ because directional data is more informative than no data at all.”

Walters gives an example of data-driven insights in action. “Monitoring inventory shrink across months can highlight opportunities for the merchandising team to re-merchandise to prevent theft, opportunities for the operations team to catch SKU integrity errors and areas of internal theft,” he says. “With inventory reporting, one report will reveal actionables across multiple departments.” 

How to create an inventory report

Before doing anything, Juli Lassow, founder and principal of JHL Solutions, recommends asking yourself what you want to get out of the inventory report. “Outline the key performance indicators (KPIs) your organization will track,” she says. With so many metrics to consider, this will keep your reporting process focused and actionable. 

Consider your tech stack — in other words, the technology tools you use to run your business. You’ll want reliable inventory management software to speed up the process, avoid human errors, and sync data across tools. In fact, 15% of inventory distortion issues are due to software that won’t integrate. 

While you technically can use Excel spreadsheets and manual reports, modern tech like Vend’s POS system will make inventory reporting easier, more accurate, and more valuable. “Retailers with a POS system can generate reports more easily than those not tracking sales and inventory at the SKU level,” says Guillot.

Once you’re all set up, it’s time to run the data. 

1. Build your list of items

Export this from your POS, inventory management software, or another database that has the information. Include basic information like how many units you have on hand, where the units are located, which variants you have, serial and SKU numbers, price, and other basic information. The information you include will largely depend on the questions you want answered. 

2. Establish your timeframe

It’s important to pull all metrics from the same timeframe, otherwise you’ll have mismatched data and discrepancies. You might look at a year or drill down to the hour. And if you’re comparing periods, ensure you’re comparing apples to apples. In other words, if you’re looking at sales numbers for June compared to November, you’re likely going to see a big difference due to holiday shoppers. 

3. Run your reports

Then it’s time to choose which reports you’ll run and generate the numbers. Guillot recommends starting with auto-generated, or canned, reports. “POS dashboards and canned reports are a great place to start your analysis,” she says. “But keep in mind that without an enterprise reporting system or best practices to recording your inventory ownership over time, it’s rate that you’ll get an accurate look at your end-of-period (EOP) inventory.”

How often do you generate inventory reports? 

The only one-size-fits-all answer in terms of inventory reporting frequency is that you should make it a regular habit, and always do it before and after a known busy period. 

Weekly and monthly

“Leverage your POS, ecomm storefront, and inventory management solution to pull inventory reports by exporting data weekly and monthly,” recommends Walters. He also notes that it depends on what the data is and who’s using it. “Weekly and monthly reports can support different teams. For example, the merchandising and marketing team can benefit from a weekly report so that they can compare how the launch and placement of a new product affects sales of existing products.”

After busy selling seasons

Guillot describes the importance of looking at the metrics after busy selling seasons. “Generate inventory reports after every important period of business,” she says. “This often includes generating and analyzing reporting at the end of each week, month, quarter, half, and year. Reports should also be run after other significant events like the holiday season. Your sales trends are important but so is period over period growth. Think holiday 2019 vs. holiday 2018.”

Based on your business operations

Lassow recommends looking at your business operations. Do you order items daily, monthly, or at a different cadence? Inventory reports contain important insights to inform purchasing. “Given the speed of change in retail, keeping current on inventory health is essential to manage customer satisfaction and company profitability,” she says. 

Types of inventory reports to create

As we noted before, there are different types of inventory reports that you can pull. Each has its own purpose, intended audience, and insights. But it’s important to remember to tie the data together, too. 

“Inventory can’t be managed in a vacuum from other key merchandising metrics,” says Lassow. “And it can’t be handled solely by the inventory planning team.”

So, where to start? 

“First, review your auto-generated reports,” Guillot says.

A word of warning, though: “Keep in mind that without an enterprise reporting system — or best practices to recording your inventory ownership over time — it’s rare that you’ll get an accurate look at your end of period (EOP) inventory,” she says. “EOP inventory is what any size retailer needs to unlock the true value of inventory reporting.”

1. Inventory on hand

Inventory on hand reports indicate how many product units a retailer has in each store, along with their current stock value. This is essentially a measure of how much capital you have in your inventory, which helps with reordering, forecasting, budgeting, and financial planning.

2. Low stock

Retailers lose $1.75 trillion every year because of out-of-stocks, overstocks and returns. Low stock inventory reports tell you which items are running low. Considering the cost of out-of-stocks, this report is crucial. If you frequently have stockouts, customers will no longer rely on your store and will look elsewhere for their shopping needs. This helps you stay on top of low stock items and be proactive in reordering. 

Retail business development manager Tristam Eriksson and his colleagues at vape store Vapouriz regularly review their re-order levels to make sure they always have enough to meet demand.

3. Product performance report

These inventory reports tell you which products are the most popular and profitable. You might look at the gap in between purchases. For example, if there was a long time between the first and last sale date, you’ll want to investigate why it’s not selling quickly. And if you have items that are flying off the shelves, you might consider biggest orders. 

Walters recommends using the sales velocity and aging inventory reports. “Having visibility on sales performance by styles can be useful for your creative team, planning, merchandising and marketing,” he says.

4. Shrink

in 2017, shrink cost retailers across the globe nearly $100 billion. In the U.S., it accounted for 1.85% of sales in retail stores. While it may seem small, those are profits that you worked hard to earn. Shrink reports can help you monitor rates over time and determine if there’s a bigger problem you need to address.

5. Benchmark comparisons

“Inventory visibility isn’t something that happens overnight,” says Walters. “It takes months to develop and refine best practices.” While industry averages are helpful, they don’t account for the nuances that each retail store faces. The best comparison you can make is a comparison against yourself. Over time, you’ll be able to establish benchmarks in your data, so you can monitor over time whether you’re meeting those standards.

“Each individual report will reveal a slice of what’s happening in your business,” Guillot says. “Triangulating the information of each of these reports over time will sharpen your analytical skills and help you manage future inventory investments.”