Did you know that the average U.S. retailer’s inventory records are only 65% accurate? That means more than a third of the time, they don’t actually know if a product is in stock or not.
For far too many retailers, this is the everyday situation. Without an inventory system, there’s no reliable way of knowing what’s in stock, what is selling the fastest and what product has been sitting in a storage room for months.
Read: The Complete Guide to Retail Operations
By implementing a good inventory system you gain visibility and control over products and their whereabouts. In this blog we’ll focus on benefits that come with implementation of a retail inventory system, types that are often used in retail and solutions that might be right for your business.
Key Takeaways:
Retail inventory systems are essential tools that help businesses track, manage, and optimize their stock, with most modern solutions operating digitally and through the cloud.
Implementing an inventory system reduces overstocks, stockouts, and shrinkage, leading to lower storage costs and fewer losses from theft or errors.
Accurate inventory data enables better forecasting and more precise reordering, ensuring retailers have the right products available at the right time.
Inventory systems simplify retail operations by automating tasks like stock tracking and product updates, reducing the need for manual counts and paperwork.
There are several types of inventory systems used in retail, including perpetual, just-in-time (JIT), periodic, ABC analysis, and barcode systems—each with unique advantages and ideal use cases.
What Is A Retail Inventory System?
Let’s put it this way – a retail inventory system is every process and tool that retailers use for tracking and managing stock of products. The main goal of implementing an inventory system into your retail business is to simplify retail operations, reduce waste and make decision-making easier.
Main functions related to inventory management system are:
Ordering stock
Receiving and storing inventory
Tracking inventory
Reordering
Inventory auditing
Data analysis and forecasting
7 Benefits Of Using Retail Inventory System
When your business has just started to grow you might not see the point of the inventory system, but research shows that businesses who use them have 30% better order fulfilment rates than those who don’t. If you want to be one of the high performers then you can’t ignore retail inventory systems and their benefits.
Reduced overstocks and stockouts
The goal of every retailer is to know exactly how much stock is “just right”, but oftentimes it’s hard to predict the exact amount of stock needed. By setting reorder points and using low stock alerts you can avoid stockouts leading to loss of potential sales, overflowing warehouses and high storage costs.
Reduced shrinkage
Shrinkage presents the gap between what your inventory records show and what’s actually on the shelves. It remains a costly problem for retailers, with U.S. businesses losing over $142 billion to shrinkage in 2023 alone. While theft is a major factor, a surprising amount of shrink stems from simple errors.
Miscounts, misplaced items, and incorrect data entry during stocktakes are responsible for nearly 1 in 4 shrinkage incidents. A retail inventory system tackles these issues head-on by automating stock counts, tracking items in real time, and flagging discrepancies as soon as they occur.
Lower warehouse costs
By implementing a retail inventory system you know exactly how much inventory is needed of each product in each season. The JIT inventory system is specifically designed for minimizing warehouse cost by timing delivery of raw materials with production time.
You are also reducing costs of shipping, depreciation and logistics.
Improved forecasting
Every retailer wants better insights into fast- and slow-paced products. Better prediction of trends and seasonality of certain products can lead to up to 9% increase in revenue.
For example, sun dresses sell better during the summer months, so you’ll know that you should keep more of them in stock during that time of the year.
Streamlined operations
Automation through retail inventory systems increases efficiency and lowers the need for manual labor, reducing time spent on routine tasks.
For example, some inventory systems automatically update product information, completely removing the need for physical counting.
🚀 Pro tip! Streamline all your daily operations with standardized workflows and retail checklists. Tools like Bitreport help you optimize retail operations and shorten auditing processes.
More accurate reordering
With up-to-date inventory data, reordering becomes much more precise. You can set reorder points for each product, ensuring you restock at just the right time and in the right quantities.
This keeps your shelves stocked with what customers want and allows retailers to know when it’s time to reorder popular products or remove slow-paced products completely.
Customer satisfaction
Managing inventory efficiently directly impacts your customer satisfaction with product availability and speeding up product detection. 69% of online shoppers abandon their purchase in case that a product is out-of-stock.
If you’re experiencing those numbers yourself then it’s time to prevent customer loss with an inventory system, giving you the ability to fill and process orders more quickly, giving the additional value to the customer.
5 Types Of Retail Inventory Systems
Choosing the right system can be challenging, because every business has its own specific needs and way of managing inventory. By implementing the wrong inventory system you risk wasting time and money on something that was never going to work. In the next section we explain each of the retail inventory system types and what use-cases they’re best suited for.
Perpetual Inventory System
Just-in-Time (JIT) Inventory System
Periodic Inventory System
ABC Analysis
Barcode Inventory System
Perpetual Inventory System
Think of the perpetual inventory system as your store’s real-time inventory tracker. Every time a customer buys a pair of sneakers or returns a shirt, the system instantly updates your stock levels. For example, big retailers like Walmart use this method to keep tabs on thousands of products across multiple locations.
The best part?
There’s no need for constant physical stock counts—you always know what’s selling fast and what’s gathering dust on the shelves. This helps avoid running out of popular items and lets you quickly spot slow movers.
Image source: Chain Store Age (CSA) – Walmart
Just-in-Time (JIT) Inventory System
The JIT system is focused on reducing waste and optimizing efficiency by timing raw-materials exactly with production schedule. This method reduces costs as you don’t need as much storage space for inventory. Downside is that you are more vulnerable if any supply chain disruptions occur.
Many electronics retailers use JIT to keep up with fast-changing tech trends, but if shipments are late, shelves can go empty quickly.
Periodic Inventory System
This system is best suited for smaller businesses who don’t have a huge product turnover. Instead of tracking every sale, the periodic inventory system requires bi-weekly or monthly physical count. A good example is a small boutique that counts all products on shelves each month. While it’s not as high-tech, it’s budget-friendly and gives you a snapshot of what’s in stock.
ABC Analysis
This system helps you keep your priorities straight. Based on the Pareto principle or 80/20 rule – 20% of goods make up 80% of inventory value – be it in sales volume, consumption frequency or any other standard.
For example, in a shoe store, the “A” items are your best-selling, high-value sneakers – they might only be 10% of your products but account for 70% of your sales. “B” items are medium-value, like seasonal sandals, while “C” items are the slow-moving products, such as last year’s winter boots. By sorting products this way, you can prioritize reordering your top sellers and avoid overstocking items that don’t move.
Final Thoughts
Inventory management in the retail industry brings with it many benefits – from knowing the exact amount of stock you need for each season to easier KPI tracking and forecasting. But to unlock the full potential of a retail inventory system you need to carefully choose the right one for your business. Perpetual inventory system is the most common and according to the most sources the best one for the majority of retail businesses.
While a retail inventory system manages your products and stock levels, tools like Bitreport ensure your teams are aligned, audits are completed, and operational standards are met – creating a solid foundation for inventory accuracy and loss prevention.
