What does inventory turnover indicate for a retailer?

Inventory turnover is a crucial metric that reflects the efficiency with which a retailer manages its inventory. It is defined as the ratio of the cost of goods sold (COGS) to the average inventory for a period. This metric indicates how many times a retailer sells and restocks its inventory over a specific time frame, generally expressed on an annual basis.

When turnover is high, it signifies that a retailer is selling products quickly and effectively replenishing stock, which is often associated with strong sales performance and efficient inventory management. Conversely, a low turnover rate may suggest overstocking, weak sales, or ineffective inventory management.

Understanding inventory turnover helps retailers make informed decisions about purchasing and stocking products. They can identify which items sell quickly and should be reordered frequently, and which items may require discounting or other strategies to move them out of stock. Therefore, a high turnover rate is generally desirable as it indicates both liquidity and a good alignment between inventory levels and customer demand.

The other options do not capture the essence of what inventory turnover represents. For instance, the number of products added to inventory does not directly relate to how quickly those products are sold or how well a retailer manages its stock. Similarly, customer complaints and the total cost of goods sold are important factors