Inventory turnover is a ratio that shows how many times a company's inventory has been sold and replaced during a specific period. It's calculated by dividing cost of goods sold by average inventory value. A higher turnover indicates strong sales and efficient inventory management.
Different product categories have vastly different turnover expectations. Fast fashion might turn inventory 12+ times per year, while luxury goods may turn just 2-3 times. Understanding category benchmarks helps contextualize a brand's operational efficiency.
For DTC brands, inventory turnover directly impacts cash flow and storage costs. High turnover means less capital tied up in inventory and lower risk of obsolescence. Monitoring turnover by product category can identify slow-moving items that may need promotions or should be discontinued.