Divorce the Inventory and Marry the Turnover


After news of Amazon buying Whole Foods, questions surfaced about how a firm that generates virtually no profit could be causing disruptions through so many industries.  While other factors apply, one force is that Amazon drives billions of dollars in cash flow by turning inventory 7x per annum.  Amazon can maintain razor-thin margins from low cost merchandise as long as inventory is moving off their shelves.


When management questions why there is no cash, it almost invariably is because surplus and dated inventory from low inventory turnover rates are depleting profit.  A belief that every item must be profitable and the price must be held or only minimally discounted is a surefire way to distort effective ordering cycles and inventory levels that drive cash flow and growth.


Those leggings from 2014 have been replaced by crop pants.  Let that merchandise sell for whatever price can be gotten for it, and reallocate the cash to fresh inventory.

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