Which key performance indicator (KPI) measures the efficiency of inventory management in retail?

The inventory turnover ratio is a crucial metric in retail that assesses how efficiently a retailer manages its inventory. This KPI indicates how many times inventory is sold and replaced over a specific period, typically a year. A higher turnover ratio suggests that a retailer is selling goods quickly and effectively managing its inventory levels, minimizing the holding costs associated with excess stock.

By focusing on the inventory turnover ratio, retailers can gauge their operational efficiency, understand consumer demand better, and optimize their stock levels to align with sales patterns. This ultimately leads to improved cash flow and reduced risks of obsolescence, which are vital for maintaining a healthy retail operation.

The other indicators, while important in their own right, do not specifically focus on inventory management efficiency. For instance, gross margin return on investment relates to profitability, customer satisfaction index focuses on service quality, and sales per square foot measures retail space efficiency, rather than inventory management effectiveness.