By Bill Scott, founder of StoreReport LLC & Scott Systems Inc.

I recently did an analysis on the inside sales of 16 stores over a period of 36 months (August 2012 – July 2015). Here are the results:

Total Tenders: 21,263,310
Total Sales:    $50,914,146
Total Individual Items Sold: 22,647,084

The details support my theory.

I have to admit that this is not exactly what I expected. The change during the second year of the study is shocking, but watching the data as it was collected since 2003, I must admit I had noticed a gradual decline and/or stagnation of sales for some time; however, I did not expect it to be so dramatic.

As you can see, in the 2nd year, between 08/13 – 7/14, there was a 6.54% decrease in sales, and a 7.25% decrease in turns. I had gathered 11 years of research that was telling me the stores had twice the inventory needed to meet customer service level. I understood the extra cost the company was incurring by warehousing unnecessary stock, but proving that reducing the inventory would have a positive effect on sales was merely a theory at this point, and based upon information I had collected from various unsubstantiated sources over the previous decade.

However, I happen to know that this company hired an individual, experienced in the operation of convenience stores, who implemented some of the suggestions that I had been trying to get the company to adopt since 2003, mainly that of lowering the stores’ inventory by 30%-50%. It made no sense to me then, nor does it now, that a company that receives two deliveries per week needs 90-1,000 days worth of anything. But the myth being perpetuated that stores bursting with overstock “made the store look full,” was so deeply ingrained in management’s psyche, my advice had fallen on deaf ears.

So, at the beginning of the third year, on his own, the new manager of stores did just that, but I had to wait another twelve months to pull the results. As you can see, during the 3rd year, while the inventory volume was being reduced over the course of the year, the company experienced an increase in sales of 5.15%, and an increase in turns of 5.15%, and the dollars per tender saw an increase of $0.03. I admit that inflation accounted for some of this increase, but I think the evidence is clear in that a decrease in stock did NOT result in a decrease in sales.

If this company continues on this course, I fully expect to see a 6%-8% increase in the coming year. Reducing the inventory not only solves the overstock situation, but by keeping an eye on the number of products on hand, thereby taking advantage of a much cleaner and less chaotic environment, it also reduces out-of-stocks, improves employee performance and is having a positive effect on reducing theft. And let’s not lose track of the addition of dollars to the company’s working capital.