A Retailers Guide to E-commerce Inventory Management

In this article, we’ll look at the fundamentals of inventory management, why it is so important for your retail business, the unique challenges of stock control as a multichannel retailer and we’ll share some useful tactics and tips for mastering the mystery of inventory management!

Inventory management for multichannel retailers

Many bricks and mortar retailers pride themselves on their mastery of inventory management. Working in their sector for years, knowing their customers on a personal level and understanding the changing taste of their audience (through regular face-to-face interaction) allows them to intuitively forecast when they need to re-order or run down their stock.

This ‘sixth sense’ for stock management is a skill elite retailers develop over time. However, recent research suggests that not all retailers share the same superpower: according to one report, up to 18% of UK retail stock is potentially made up of unavailable inventory.

two retail staff inspect inventory using a ipad device

Retailers, even the superpowered ones, might be reluctant to admit it but that intuition of when to re-order or when to rundown stock has usually been grown through the bitter experience of being over or under-stocked in the past!

And when it comes to selling in physical retail and online simultaneously, the complexity, rate of change and likelihood for error increases tenfold.

In this article, we’ll look at the fundamentals of inventory management, why it is so important for your retail business, the unique challenges of stock control as a multichannel retailer and we’ll share some useful tactics and tips for mastering the mystery of inventory management!

What is retail inventory management?

Inventory management is the process of tracking, managing and organising your product sales and purchases into a system that creates maximum profitability for your retail business.

Put simply, it is keeping on top of your products in stock, versus products sold and knowing when, or if, to re-order stock from your supplier.

Many exclusively bricks-and-mortar retailers still rely on manual stock management processes. The dreaded stocktake where every product in your store is counted by hand and tallied against sales is an unwelcome but necessary part of most retail operations.

For exclusively online retailers, their e-commerce system can often perform the basic functions of a modern inventory management system, allowing them to set low stock alerts and to easily analyse past performance to forecast future demand.

However, for multichannel retailers (that is retailers selling online and offline) or omnichannel retailers (sometimes referred to as fully integrated retail or selling offline and online, including various marketplaces such as Amazon), the challenges of accurately and efficiently managing your inventory dramatically increase.

We have heard a few horror stories over the years from multichannel retailers who did not use a unified inventory for their online and offline shops and who failed to factor in a surge in demand caused by a particularly successful online promotion.

The unexpected success of their promotion meant the majority of their stock was snapped up overnight, leaving them with little to satisfy customers who came into their physical store the next morning.

To make matters worse, the higher online return rate meant a large proportion of stock ended up coming back to them and, as demand had died down again, they failed to sell it at full price – impacting their longer-term profitability.

The use of proper inventory management systems and processes could have prevented this.

What systems do retailers use to manage inventory?

Different retailers have different systems for managing their stock and they can range from the old handwritten stock book to complicated excel spreadsheets, right through to specialist omnichannel inventory management software.

It’s safe to say that only the most basic of retailers with the smallest possible range of products could rely on a handwritten stock book! But many retailers still try to ‘make do’ by manually pulling together their system from their cash register receipts into spreadsheets and tables.

Manually entering data massively increases the chances of mistakes and with your shop’s profitability on the line, a small investment in a proper system makes good business sense.

Any manual system limits your business’ ability to grow as the work required to maintain it will inevitably grow as your sales grow. Investing in proper software automates many of these processes, allowing you to continue to grow your business without worrying about the added workload of multiplying worksheets, complex formulae and tricky pivot tables!

When you add multi or even omnichannel sales into the picture, a fairly sophisticated piece of software is called for.

female refill shop owner checks stock using ipad based epos system

Inventory management fundamentals

There are a number of core principles that any retailer should be familiar with to effectively manage their inventory.

  1. Stock knowledge – knowing the exact number of items you have in stock, their age and condition, and their location is the most basic element of stock control. But it is surprising how many retailers fall foul of this and have the dreaded “there’s one showing on the system but there’s none out the back” conversation! Or the even worse scenario of delivering an e-comm order from stock that has been in storage so long that its condition no longer meets customer expectations.
  2. Forecasting – forecasting without a digital system is more magic than science. A proper inventory management system can drastically reduce the margin for error in forecasting and give you a reliable set of stats to look back on. Helping you to make better predictions of future sales.
  3. Par stock – safety, safe, buffer or par stock is the safety net between running out of stock and accounting for spikes in supply and demand. Essentially, you set your safe number (or par level) based on estimations of current sales and the lead time to reorder. Setting this additional stock to the side allows you to keep a steady supply even if demand suddenly spikes or if your supplier unexpectedly can’t fulfil a re-order.

(Maximum Sales Per Day x Maximum Lead Time) – (Average Sales Per Day x Average Lead Time)

Depending on how fast-moving your stock is and how seasonal or trend-driven your product is, you might want to recalculate this on a weekly or monthly basis and keep an eye on the decline in this product category in the year(s) previous as a guide for when to run your stock down.

Expert Tip: This formula should act as a simplistic guide rather than a hard and fast rule – analyse past performance and trust your instincts as a retailer.

  1. Reorder points – Based on your par stock, it’s a quick calculation to work out when you should re-order to ensure you don’t dip into that buffer.

Reorder Point = (Average Lead Time x Average Daily Sales) + Safety Stock

So in the above examples, if the maximum daily sales of Product A are calculated as six and a re-stock from your supplier could take up to five days, this gives us a figure of 30. If you’re currently selling four per day and the average re-stock is taking just two days (8), your safety stock is 22.

In this case, the reorder point will be when your average sales per day x your average lead time is added to your par stock level. In this example that’s 8+22=30

So when your stock sheet says only 30 left – it’s time to call your supplier and place an order.

Expert Tip: Don’t forget to include the additional lead time for you to process re-stocks from your supplier. Items will typically need to be unpacked, scanned into your inventory and if you’re dealing with apparel, often steamed, unpacked and displayed or if you’re combining products in-store into gift bundles or other grouped products, you need to allow time for packing and wrapping.

Multichannel Inventory management

Bricks and mortar retailers often struggle with good stock control but add in the complexity of selling through your own website, an Amazon store AND potentially another marketplace such as eBay, and it is easy to see how a spike in demand in one storefront can lay waste to your stock holding and ability to supply your other shops.

retail manager inspects a warehouse using a tablet based epos system

It is essential that you have one unified stock file that is integrated through your e-commerce system, EPOS and any other channels you’re selling on.

Luckily, AirPOS has a free integration with Shopify which has tried and tested plugins to all of the major marketplaces. This is the most cost-effective multichannel inventory management tool in the market and is ideal for small retailers with ambitions to challenge the big multiples.

This sort of omnichannel set-up once cost thousands of pounds just to launch but with AirPOS and Shopify, omnichannel is finally within the grasp of any independent retailer.

Having a live, real-time inventory gives you one single source of truth and clears the way for you to focus on what is most important – increasing your profitability.

Retail analytics: The truth is out there

Physical retail is all about the touchy-feely aspects of selling – human relationships, live interaction, customer experience and psychology.

The power of getting face to face with your shoppers can not be underestimated as an exercise in business management – your customers are an analytics engine, a market research survey, a forecasting tool.

If you own and work in your own retail business you’re ideally placed to use these insights to create an incredible physical and virtual shopping experience. You just might not have the time to do the other 1,000 tasks that a retail owner has to do every day!

This is why getting a handle on your data is so important.

Exporting your sales on a weekly basis and tracking it by category or product (depending on the number of SKUs in your shop) can unleash incredible insights. Layer on top of that a year-on-year comparison and your own customer-based insights and you have the makings of a powerful decision-making formula.

Data doesn’t lie. Backing up your retail instincts with hard facts and statistics is a winning combination for retail decision-making.

AirPOS’s powerful analytics tools allow you to easily export your sales and inventory in multiple formats and has a handy set of standard reports built-in. We also have a dedicated app for mobile so you can keep track of your most important stats while you’re away from the business.

How to plan your online inventory

As much as possible, you should try to replicate your in-store offer with your online offer. Shoppers can be frustrated if they see and try on something in-store and it is not available online – and vice versa.

However, it is common for some products to be difficult to sell online or to come with added risks to your profitability such as extremely high returns, increased likelihood of damage in transit or expensive shipping rates.

With AirPOS and Shopify, you can customise which products from the physical inventory you wish to sell online with an easy on/off switch – giving you complete control of what you sell and where.

female retailer completes a stock take of her wine shop using an ipad epos system

Expert Tip: Ensure your e-commerce store offers the widest possible representation of your bricks and mortar experience without risking your profitability.

Make sure to offer seamless integrations between your physical and virtual stores to reduce your costs – rather than paying for outbound or returns shipping all of the time, incentivise your customers to use click and collect or returns drop-off services.

And if you are a fashion retailer, use all the tools of social media to demonstrate fit on real people in your store with short videos and add specific advice on your website on whether certain brands run large or small in their sizing. Small steps like this and having detailed and prominently placed size guides can make a huge difference to your returns rate.


In conclusion, multichannel retail inventory management is an art that balances finely honed retail instincts with proper systems and processes. But it is at its most powerful when it relies on data to inform decision-making and uses a specialist piece of software with tried and tested integrations to maintain your inventory and your profitability.

Understanding some of the core metrics and formulas of inventory management can help guide your decisions but using the proper software can take some of the manual work out of this and reduce the likelihood of error.

AirPOS integrates seamlessly with Shopify, the world’s leading e-commerce platform, to provide a live, accurate inventory management tool that allows you to sell what you want online or offline without the risk of disappointing your customers with out-of-stocks or damaging your profitability with overstocks.

For more information on our free Shopify EPOS integration click here to see a demo video or arrange a no-obligation call with a member of our team.

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