Retail firms are at risk that their inventory will become obsolete. What can a f

Question

Retail firms are at risk that their inventory will become obsolete. What can a firm do to minimize this risk? What types of firms are most at risk? Least at risk? Select a retail firm that you think might be concerned about obsolete inventory and another that you believe would not be very concerned. Then, find their financial statements and calculate the inventory turnover ratio of these two firms for the past two fiscal years. Are your results what you expected? Explain what you expected to find and your results.                   

Explanation / Answer

Retail companies earn money by reselling the product purchase .one of the risks that thes companie face is risk of inventory getting obsolete .To minimise the risk the compnay should make use of effective inventory control system.

Steps to minimise obsolete inventory

1) Reduce oversupply - Excess purchase should be avoided as surplus stocking can lead to obsolete inventory resulting in sale at low prices

2) Create demand-This can be done by offering limited supply of items

3) increase complementary sale

Comapnies which face higher risk of obsolete are those that are more prone to change in demand and tastes. Other such firms can be those which sell highly perishabel food items

Rite Aid         inventory turnover ratio = $18202679/3074345 = 5.92

Macy's                                                    = 16863/5536.50           = 3.04

We see that rite aids inventory turnover days is around 61 days as compared to that macy's has 12 days turnover which shows that the stocks are not held for longer period.

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