Noni B surprise profit upgrade contains warning on inventory management for SMEs

In the second surprise retail announcement of the week, fashion chain Noni B saw its shares rise 37% yesterday after announcing a profit upgrade, just days after Super Retail Group announced a sales boost of its own.

The announcement is a glimmer of hope for the industry which suffered tepid Christmas sales and a number of downgrades in the weeks leading up to the new year.

But experts say the announcements contain a crucial lesson for SMEs, with both companies attributing a large amount of their success to sharp inventory management.

“Inventory is a critical aspect to get right, and it can get out of control very quickly,” WHK partner in charge of national retail advisory practice at WHK, David Gordon, told SmartCompany this morning.

Noni Bi director David Kindl told the Australian Financial Review the upgraded forecast – after tax profit is now expected to be up 40-60% for the second half of the year – comes as a result of accurately forecasting inventory.

“We’re doing the buying job better and better every year, avoiding the worst of discounting,” he said. “We focus on what we can manage, like stock expenses, and we do our best to be careful and run a very lean business.”

Noni B now expects profit in the range of $2.1-2.4 million, up from $1.5 million.

The comment comes just days after Super Retail Group said that it was able to boost sales by quickly turning over inventory and showing off new stock.

Gordon says maintaining inventory is a crucial task that many smaller retailers don’t often get right.

“The trick with inventory management is balancing having sufficient stock to meet demand, and on the other hand, not carrying so much that your money is tied down.”

“Maintaining inventory is a daily thing, and if you take your eye off it for just a minute, then you can lose control. Both these companies have implemented strong automated systems to get to where they are now.”

Gordon explains the problem is much more difficult for fashion businesses, which deal with seasonal products, while companies such as Super Retail have a much broader product range.

Part of the solution for SMEs, he says, is implementing long-term plans for managing inventory that don’t necessarily pay off in the short-term.

“These companies have implemented systems a long time ago to help manage their stock. I know speaking from experience using those systems takes a lot of time, and the business needs to mature into those systems.”

“You would assume they’re getting a lot of value based on the work they put in some time ago.”