This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Gaur, V. Articles by Raman, A. Search for Related Content

An Econometric Analysis of Inventory Turnover Performance in Retail Services

Leonard N. Stern School of Business, New York University, 44 West 4th Street, New York, New York 10012
The Wharton School, University of Pennsylvania, Jon M. Huntsman Hall, 3730 Walnut Street, Philadelphia, Pennsylvania 19104-6366
Harvard Business School, Morgan Hall, Soldiers Field, Boston, Massachusetts 02163
vgaur{at}stern.nyu.edu
fisher{at}wharton.upenn.edu
araman{at}hbs.edu

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.

Key Words: benchmarking; inventory turnover; retail operations; performance measures
History: Received: November 21, 2003;

This article has been cited by other articles:

				V. Tiwari and S. Gavirneni ASP, The Art and Science of Practice: Recoupling Inventory Control Research and Practice: Guidelines for Achieving Synergy Interfaces, March 1, 2007; 37(2): 176 - 186. [Abstract] [PDF]

				M. Fisher Strengthening the Empirical Base of Operations Management MSOM, January 1, 2007; 9(4): 368 - 382. [Abstract] [PDF]

				S. Rumyantsev and S. Netessine What Can Be Learned from Classical Inventory Models? A Cross-Industry Exploratory Investigation MSOM, January 1, 2007; 9(4): 409 - 429. [Abstract] [PDF]

				H. Chen, M. Z. Frank, and O. Q. Wu U.S. Retail and Wholesale Inventory Performance from 1981 to 2004 MSOM, January 1, 2007; 9(4): 430 - 456. [Abstract] [PDF]

				G. P. Cachon, T. Randall, and G. M. Schmidt In Search of the Bullwhip Effect MSOM, January 1, 2007; 9(4): 457 - 479. [Abstract] [PDF]

				The MSOM Society Student Paper Competition: Extended Abstracts of 2005 Winners MSOM, January 1, 2006; 8(1): 98 - 117. [Abstract] [PDF]