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An Econometric Analysis of Inventory Turnover Performance in Retail Services

Author

Listed:
  • Vishal Gaur

    (Leonard N. Stern School of Business, New York University, 44 West 4th Street, New York, New York 10012)

  • Marshall L. Fisher

    (The Wharton School, University of Pennsylvania, Jon M. Huntsman Hall, 3730 Walnut Street, Philadelphia, Pennsylvania 19104-6366)

  • Ananth Raman

    (Harvard Business School, Morgan Hall, Soldiers Field, Boston, Massachusetts 02163)

Abstract

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.

Suggested Citation

  • Vishal Gaur & Marshall L. Fisher & Ananth Raman, 2005. "An Econometric Analysis of Inventory Turnover Performance in Retail Services," Management Science, INFORMS, vol. 51(2), pages 181-194, February.
    • Handle: RePEc:inm:ormnsc:v:51:y:2005:i:2:p:181-194
    DOI: 10.1287/mnsc.1040.0298
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    References listed on IDEAS

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