The cost of lost sales
While many smaller retailers think that they need more inventory to be sure they don’t miss any sales, the reality is that too much inventory almost always leads to lost sales. This is where having too much inventory can actually impact a retailer on the very top line of the Income Statement.
When there’s too much inventory, stores are simply harder to shop, and when stores are harder to shop customers buy less. This can play out in several ways:

When stores are overstocked, it’s simply much harder for customers to find what they came in for, and much more likely they’ll leave without it.
When there’s too much stuff, aisles can become narrower, discouraging customers from exploring deeper into the store.
When displays are overstuffed, customers become afraid to touch, afraid of breaking something on a shelf simply packed to tightly, or starting an avalanche on a display piled too high.
When there’s too much assortment, too many things to choose from, customers can become paralyzed. If the retailer hasn’t been able to focus the assortment for the customer, how can the customer know with confidence that they’ll be happy with what they purchase?

Invariably, when stores bring their inventories in line, clean up their assortments and make it easier for the customers to shop and find what they’re looking for, sales go up. And in some cases, sales don’t just go up a little bit, they go up a whole lot. The math is irrefutable. Inventory costs money, and too much inventory costs a lot more money. The cost of slower turning inventory is much greater than the cost of faster turning inventory. And the costs are felt throughout the business, from lost sales, to reduced margins, to increased expenses. Those smaller retailers that actively manage their inventories, striking the right balance between having what their customer want and having too much, invariably are more profitable than those that don’t.