A retailer can report a healthy gross margin and still repeatedly run short of cash. One factor to investigate is capital tied up in products that have not sold.
The funding gap starts before the sale
01Read inventory by age and selling potential
Total inventory value is insufficient for decisions. Segment by SKU, age, sell-through, recent sales and weeks of demand coverage. Separate seasonal goods, launches and stable-demand products. Two slow weeks do not necessarily signal a problem; continuing to buy an item with no remaining demand is different.
02Gross margin hides capital costs
Inventory incurs storage, preservation, discounting and obsolescence risk. Money tied up in one SKU cannot fund a better-selling product. High gross margin is insufficient when stock turns too slowly. Compare margin generated with average inventory capital; agree cost-based versus selling-price measures to avoid misleading comparisons.
03Markdown decisions need incremental cash
Illustrative example: a batch purchased for VND 200 million may recover only VND 170 million through clearance. The accounting loss matters, but does not automatically justify holding it. Compare net cash today with expected future proceeds, holding costs and deeper markdown risk. Historical purchase cost is not another cash outflow in the hold-or-sell decision.
04Connect purchasing to the cash forecast
Set reorders using demand, lead times and justified safety stock. Review open purchase orders with stock on hand before approving more. Purchasing plans must reflect service objectives and cash constraints together; excessive stock cuts can lose sales and cause expensive emergency purchases.
Key takeaway
Assess inventory through cash conversion and capital productivity alongside customer service needs.
All numerical examples are hypothetical, not client results. Definitions, assumptions and business context affect the conclusion.
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