Hi Jennifer,
The simplest answer is "it depends."
Some key factors to consider in determining your appropriate inventory level are:
- Do you sell perishable items? (which requires higher inventory levels)
- Do you sell higher-end products? (such as jewelry which requires lower levels)
What you want to calculate is the Inventory Turnover Ratio rather than a % to sales. The calculation is straightforward. If your shop experiences seasonal fluctuations, you can select your busiest quarter.
First, determine your "Average Inventory" = (Beginning Inventory + Ending Inventory) divided by 2
Inventory Turnover Ratio = Cost of Goods Sold divided by Average Inventory
For the museum (Iolani Palace) where I used to work, which is a National Historic Landmark in Honolulu with high tourist traffic, our shop's turnover ratio was 3.75 (a ratio of 2.00 is considered acceptable for cultural commerce, which is always lower than commercial retail). That meant that we were selling and restocking inventory about 4 times a year since we were using our fiscal year numbers due to low seasonal fluctuation.
I believe the Museum Store Association would have benchmark data from the field with more specifics depending on the type of museum where the gift shop is located. You may also want to consider bringing in a museum store consultant to look at your entire operation and do an assessment with recommendations that you could then present to your museum's director. For example, our consultant explained that even though our turnover ratio was considered excellent at 3.75 for our location and other factors, it also meant we were generally carrying too low inventory levels. Our gift shop manager acknowledged often being out of stock on a number of items and mentioned that he was unsure of how much inventory to purchase at any given time. While other departments had clear budgets, the gift shop did not. The consultant recommended that we implement an Open to Buy (OTB) plan, which is a purchasing budget for future inventory orders.
At the Palace, we used Andoniadis Retail Services based in Portland, OR.
Hope this helps!
Kippen de Alba Chu
Chair, Advancement Committee
Board of Directors
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Kippen de Alba Chu
CEO, Institute for Learning Innovation
Beaverton OR
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Original Message:
Sent: 10-25-2023 04:06 PM
From: Jennifer Meier
Subject: GMROI
Hello,
Is there an appropriate dollar amount of inventory on hand % in relation to sales ? Is there a benchmark for this for museum standards and how is this percent calculated ?
Thank you !
Jennifer Meier
Gift Shop Manager
919 Broadway
Nashville, TN 37203
FristArtMuseum.org
(W) 615.744.3257
