Research Summary
Research Summary
The Effects of Firm Size and Sales Growth Rate on Inventory Turnover Performance in the U.S. Retail Sector
Description
We review and extend recent academic literature on the inventory turnover performance of public-listed U.S. retailers using firm-level financial data. Past research has shown that there is a large variation in the inventory turnover performance of retailers across firms as well as over time. A significant fraction of this variation can be explained using the following performance variables: gross margin, capital intensity and sales surprise (the ratio of actual sales to expected sales for the year). We summarize this research and present directions for future work on inventory productivity in retailing. We also extend the literature by investigating the effects of firm size and sales ratio on inventory turnover using data for 353 firms for the period 1985-2003. With respect to size, we find strong evidence of diminishing economies of scale in retailing. With respect to sales ratio, we find that inventory turnover increases with sales growth but declines remarkably with sales contraction. Our results are useful in (i) helping managers make aggregate-level inventory decisions, (ii) employing inventory turnover in performance analysis, benchmarking and working capital management, and (iii) identifying the causes of performance differences among firms and over time.