An Econometric Analysis of Inventory Turnover Performance in Retail Services

Inventory turnover varies widely across retailers and over time. This variation undermines the usefulness of inventory turnover in performance analysis, benchmarking, and working capital management. We develop an empirical model using financial data for 311 publicly listed retail firms for the years...

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Bibliographic Details
Published in:Management science 2005-02, Vol.51 (2), p.181-194
Main Authors: Gaur, Vishal, Fisher, Marshall L, Raman, Ananth
Format: Article
Language:English
Subjects:
benchmarking
Benchmarks
Business studies
Capital assets
Codes
Consumer electronics
Correlation analysis
Datasets
Decision making
Econometrics
Gross margins
Hypotheses
Inventories
Inventory
Inventory control
Inventory data
Inventory turnover
Investments
Management science
Operations management
Operations research
performance measures
Product management
Productivity
Raw materials
Retail industries
Retail industry
retail operations
Retail stores
Retail trade
Retailing industry
Sales forecasting
Securities markets
Trends
Turnover
Variables
Work in process
Working capital
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Summary:Inventory turnover varies widely across retailers and over time. This variation undermines the usefulness of inventory turnover in performance analysis, benchmarking, and working capital management. We develop an empirical model using financial data for 311 publicly listed retail firms for the years 1987–2000 to investigate the correlation of inventory turnover with gross margin, capital intensity, and sales surprise (the ratio of actual sales to expected sales for the year). The model explains 66.7% of the within-firm variation and 97.2% of the total variation (across and within firms) in inventory turnover. It yields an alternative metric of inventory productivity, adjusted inventory turnover, which empirically adjusts inventory turnover for changes in gross margin, capital intensity, and sales surprise, and can be applied in performance analysis and managerial decision making. We also compute time trends in inventory turnover and adjusted inventory turnover, and find that both have declined in retailing during the 1987–2000 period.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.1040.0298