Why Physical Inventory Counts Still Matter (and How to Make Them Easier)

Why Physical Inventory Counts Still Matter (and How to Make Them Easier)
Taking stock is essential for retailers. The pandemic has changed a few things about physical inventory counts, but it’s also made it more important as businesses get creative with what and where they’re selling.
by Kira Deutch Jan 06, 2021 — 4 min read
Why Physical Inventory Counts Still Matter (and How to Make Them Easier)

“I didn’t pay much attention to counting inventory before starting my online store,” said Julie Mitchell, the owner of Fig + Oak, a purpose-driven gift shop in Ashland, Ohio.

“During the shutdown, we launched our website. That helped save us. But having a website now live, it’s frustrating if customers are ordering things and my inventory is off,” Mitchell explained. “If I only have, let’s say, one puzzle available and my inventory isn’t correct, then the online order won’t get it because it’s not in-store, either because we miscounted or it may have been lost.”

For most retailers like Mitchell, taking stock is the only way to prevent that from happening. Taking stock, or a physical inventory count, is when you count all of the merchandise you have in your store and then match that up with your inventory records to spot any differences. If the amount isn’t the same, it can lead to missed sales, logistical issues, and, ultimately, a disappointing customer experience.

The task is backbreaking but essential work, especially if you sell across multiple channels and locations. The pandemic has changed a few things about physical inventory counting, but it’s also made it even more important as businesses get creative with what and where they’re selling.

What’s the purpose of a full inventory count?

The goal of an inventory count is to make sure your in-store inventory totals match your records. If you use a retail POS system, you can compare your inventory count with the levels recorded in your POS software.

Accurate inventory has a domino effect, allowing you to make better decisions on what to stock up on, submit timely purchase orders, and reveal and resolve issues more efficiently.

Even if you use inventory management software, you may still be required to take stock for tax purposes. Retailers typically conduct a full inventory count at the end of the year or in the beginning of the new year, when inventory is lower, so quantities are correct for end-of-year tax reporting.

Inventory counting best practices

“I usually do it myself,” said Mitchell. “I start in one part of the store and make my way around. I know my products so well that I know when something feels off, so I’ll go back and check that area again.”

Fig + Oak
Julie Mitchell standing behind the counter at her gift shop, Fig + Oak.

For Mitchell, it’s also important to pay attention to the products that are most popular with customers, so stocking, purchasing, and fulfillment happen seamlessly and don’t prevent any sales. This is particularly important these days, as supply chain disruptions have created longer lead times for certain industries. “Make sure your inventory is right with the things that are selling really well.”

Here are a few more best practices that can help you make the counting process more efficient.

Find a slow block of time

Typically, physical inventory counts require you to shut down your store so you can pull your products out, count them, and note the quantities. Conduct your count after hours so you aren’t forced to close temporarily, especially if you already have limited hours because of the pandemic.

If you need to do your inventory count during normal business hours, choose a slower time, and make sure you proactively tell customers that your store will be closed. You can update your voicemail message, revise your hours on your Google business profile, post on social, send out an email, and add physical signs to your store window.


Use a retail POS system and bar code scanner

You can count your products by hand, with inventory count sheets, or you can use a bar code scanner to read your SKU or UPC codes and then send the information to your retail POS system. Using a scanner is quicker than inventory count sheets, since you don’t have to take time to manually write down the quantities. It also prevents counting errors, since you don’t have to go through counting and then adding those tallies to your software afterwards.

Make it easy for staff to do on their own

Counting inventory can be hard to do while social distancing. You may also have to clean your merchandise after it’s been handled by employees. “I give employees specific items to count during their shifts, like candles, so people don’t overlap,” said Mitchell. That way, employees have set tasks and can keep distance while they’re counting.

To make it easy for people to complete the counts on their own, organize your floor and back room so items are in their correct spots and labeled correctly. This will cut back on the time spent going back and forth trying to track down items. You may even want to create a store map that includes the locations of all displays, windows, shelves, racks, mannequins, drawers, and other areas that your team will need to access to find merchandise.

Arrange your items so they can be scanned quickly

You also want your merchandise to be scannable. Lay your items so bar codes are facing out, making them easier to read with a bar code scanner.

For apparel, pull out tags before scanning, and then slide the item over once it’s been counted. For smaller products, like tool parts or jewelry, one approach is to have two bins out and place the scanned items in the empty bin once the count is done.


Assign the task to employees who know what you sell

Inventory counting can be tedious and time consuming, so you want to make sure the employees you select can do the job accurately. Choose employees who have attention to detail and a solid understanding of your product catalog. If you don’t have the time or staff, you can also connect with an inventory counter to come in and conduct the count for you. Hiring an outside individual or firm to count inventory is pricier, and typically common for businesses with larger inventories, like those with distribution centers.

You may want to consider rewarding your team with free meals or snacks, spot bonuses, or other types of rewards.

Have a post-mortem

When you’re done with the full inventory count, update your records in your POS system with the actual quantities, names, and prices of your physical inventory. Then analyze the results. Which products were off and why? Are there any patterns, perhaps with a specific type of item or at a certain location in your store? The reports in your retail POS system can make the analysis part of inventory counting easier.

While a full inventory count may sound overwhelming, smart inventory management is what makes your business nimble, allowing you to sell in the ways that work best for you and your customers. And it doesn’t happen overnight. “I’m still trying to figure out how to make it be that way consistently,” said Mitchell. “When the inventory is accurate, it gives me more confidence.”

Kira Deutch
The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.


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