What does "inventory turnover" measure?

Inventory turnover is a key performance metric that measures the speed at which a retailer sells and replaces its inventory over a specific period, typically expressed as a ratio or number of times within a fiscal year or season. A high inventory turnover ratio indicates effective sales and inventory management, suggesting that products are being sold quickly and that the retailer is successful in meeting customer demand.

This metric is crucial for retailers because it helps in understanding how efficiently they are managing their stock. It also impacts cash flow; faster turnover means that cash is being generated more quickly, allowing for reinvestment into new inventory or other business areas.

While the other options touch on related concepts, they do not accurately define inventory turnover. For instance, the focus on inventory purchases by retail customers or total inventory value does not measure the efficiency of inventory movement. Similarly, the rate of loss due to theft or damage pertains to shrinkage rather than the dynamics of how inventory is sold and replenished. Thus, the definition centered around the velocity of inventory sales and restocking encapsulates the essence of inventory turnover effectively.