Back in the winter of 2024, during the height of the BFCM rush, I spent three straight nights on the floor of our secondary warehouse in Ohio. We were staring at a 5.3x return spike that had effectively paralyzed our outbound shipping lanes. Our pallets were stacked six high, and the air smelled like industrial tape and anxiety. But the physical mess wasn't the real problem; the real problem was our capital. We had millions of dollars in "dead" stock sitting in trailers in the yard, waiting to be processed while our cash flow slowed to a trickle. It’s a classic operator’s nightmare: you spend all your time worrying about marketing and conversion, only to be taken down by a warehouse bottleneck. If your inventory turnsaren't moving, your business isn't breathing. It took that crisis for me to realize that managing velocity is just as important as managing growth.
What Does Inventory Turnover Ratio Tell You About Your Business?
When you’re sitting in a boardroom or a Zoom call with your CFO, the term "velocity" comes up a lot. But what does inventory turnover ratio tell you in plain English? Essentially, it measures how many times your company has sold and replaced its stock during a specific period. It’s the heartbeat of your operational efficiency.
If your ratio is too low, you’re essentially running a very expensive museum for products no one is buying. You’re paying for the space, the insurance, and the labor to count items that aren't generating revenue. Conversely, if it’s too high, you might be leaving money on the table by being constantly out of stock.
Now the logistics math that matters: a low turnover isn't just a "sales" problem; it’s often a "reverse logistics" problem. I once worked with a brand where 15% of their total inventory was perpetually "in transit" due to a slow return-to-warehouse cycle. That inventory wasn't technically sold, and it wasn't available to buy. It was just sitting in a cardboard box on a truck, effectively zeroing out their inventory turnover ratio for that segment. (Yes, I’ve panicked over these spreadsheets too, don't ask why).
The Manual: Inventory Turnover Formula and Calculation
To fix the problem, you have to measure it accurately. The inventory turnover formula is relatively straightforward, but the "inputs" are where most operators get tripped up.
Inventory Turnover Formula:
To get your inventory turns calculation right, you need to look at your average inventory over the period—not just a snapshot of today. Most brands use a monthly average to smooth out the spikes from BFCM or seasonal launches.
Here’s where ops breaks: many brands forget to include the "hidden" inventory. This includes items sitting in Happy Returns bars, items being processed at the UPS hub, and returns sitting in the "to be inspected" pile. If you don't account for these, your stock turnover ratio will look healthier than it actually is. It’s like checking your bank balance but ignoring the five checks you just wrote that haven't cleared yet.
Stock Turnover Ratio: The Difference Between Profit and Storage Costs
Operators always ask me, "What is a good inventory turnover for a DTC apparel brand?" The answer is usually somewhere between 4 and 6, but that’s highly dependent on your margins. If you have high-margin luxury goods, you can afford a lower stock turnover ratio. But if you’re in the fast-fashion or supplement space, you need that inventory moving like a treadmill.
I remember a failure case in 2023 where a home goods brand was so obsessed with "bulk discount" purchasing from their manufacturer in China that they bought 18 months of supply at once. They saved $2 per unit on the purchase price but spent $7 per unit in extra storage fees at a ShipBob facility over the next year. Their inventory turnover dropped to 0.7. They were "profitable" on paper but had zero cash to launch new products.
And then there's the return impact. When a return takes 14 days to hit the warehouse and another 7 days to be "re-kitted" for sale, that’s 21 days of zero velocity. Multiply that by thousands of units, and your inventory turnover ratio takes a massive hit.
How Do You Turn On Keep Inventory: Managing Digital Syncs
In the world of Shopify and modern e-commerce, the digital settings are just as important as the physical ones. I see people searching for "how to turn on keep inventory" or "how do you turn on keep inventory" because they’re struggling with their store showing "Sold Out" when there are actually 500 units sitting in the returns bin.
Syncing your digital "Keep Inventory" settings with your physical reality is where the magic happens. But you have to be careful. If you "turn on keep inventory" for items that haven't been inspected yet, you risk selling a damaged product to a new customer. This is the "over-processing" trap.
Now the logistics math that matters: the cost of a "bad" return being resold is often 3x the cost of the original shipment. You have to pay for the second return, the apology discount, and the potential loss of a customer for life. This is why many brands end up with a "liquidation" backlog. They’re too scared to put returns back into stock, so they just let them sit. (Honestly, I don't know why brands don't just use better inspection tools at the point of drop-off).
Inventory Turnover: The High Cost of the "Return-to-Warehouse" Loop
Here is the "inside baseball" truth about the industry: the traditional return model is a velocity killer. Most brands use enterprise tools like Loop Returns or Narvar to create a great "front-end" experience. The customer gets a label, they drop it off at a FedEx Office, and they get a refund.
But the "back-end" is still stuck in 1998. The package travels 2,000 miles, sits on a loading dock, and waits for a human to open it. During that time, the item is invisible to your inventory turns.
I’ve seen an honest failure case where a brand had a $150,000 warehouse backlog during the holidays. They had customers begging for "Out of Stock" items that were actually sitting in unopened boxes 50 feet away from the packing station. They were paying for UPS to ship items back and forth while their inventory turnover formula plummeted.
Comparison: Traditional Warehouse Velocity vs. Local Routing
How Closo Solves Return Costs and Boosts Velocity
This is where the conversation shifts from "managing" a problem to "deleting" it. How Closo solves return costs is by removing the shipping carrier from the equation. Instead of an item becoming "dead stock" for three weeks, it stays in the local ecosystem.
By using return hubs, we ensure that a return is verified and "restocked" locally in seconds. If a customer in Austin returns a jacket, a local seller or hub in Austin verifies it, and it immediately goes back onto the "digital shelf" for another customer in that same area.
We route eligible returns locally instead of sending everything back to the warehouse — cutting return cost from ~$35 to ~$5 and speeding refunds. This isn't just about saving on UPS or FedEx labels; it’s about keeping your inventory turnsas high as possible by eliminating the "in-transit" black hole.
Closo Crosslisting and Liquidation via the Network of Channels
One of the biggest drags on your stock turnover ratio is "seasonal drag." What do you do with a returned swimsuit in October? Sending it back to the warehouse to sit until next May is a death sentence for your capital.
This is where Closo crosslisting and Closo liquidation inventory via the network of channels comes into play. Instead of that swimsuit sitting in a box, Closo’s network can automatically list that local inventory across multiple channels—eBay, Poshmark, or local boutique partners.
Operators always ask me, "How do we clear out the 10% of stock that just won't move?" The traditional answer is to call a liquidator like Optoro and sell it for 10 cents on the dollar. But that destroys your inventory turns calculation because you’re realizing a massive loss. By using a decentralized network of channels, you can maintain a higher resale value while keeping the inventory moving.
Common question I see: "Does high turnover always mean high profit?"
Here’s something every ops leader asks: "We’re moving product like crazy, but our bank account isn't growing. What’s going wrong?"
The danger of a high inventory turnover ratio is that it can mask poor margins. If you’re turning your inventory 12 times a year but you’re only making a 5% margin, you’re just working really hard to break even.
But for most DTC brands, the problem is the opposite. They have decent margins but terrible velocity. They’re losing 20-30% of their potential profit to storage fees, shipping labels, and devalued "returned" stock. In my opinion, the focus should be on "Return Velocity." How fast can you get a returned unit back into the "active" inventory pool?
Common question I see: "What is the biggest bottleneck to inventory turns?"
One question I hear from CFOs often is about the impact of international shipping. If your lead time from a manufacturer is 90 days, you are forced to hold more safety stock, which naturally lowers your inventory turnover.
But for most brands, the biggest bottleneck is actually the "Reverse Logistics Bottleneck." We’ve spent so much energy on the "Forward Supply Chain" (getting things to the customer) that we’ve ignored the 20-30% of products that flow backward.
I’ve seen brands use Happy Returns to make the customer feel good, but then they let the consolidated pallets sit in a third-party warehouse for three weeks because "processing returns" is the lowest priority for the warehouse staff. This is an invisible tax on your stock turnover ratio.
Strategies for Improving Your Stock Turnover Ratio in 2026
If you want to improve your inventory turns calculation this year, you need to attack it from three angles:
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Forecasting: Use better data to avoid over-buying.
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Fulfillment: Use a 3PL like ShipBob to keep inventory closer to the customer to reduce transit time.
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Reverse Logistics: Move away from the return-to-warehouse model and toward a local routing model.
But let’s be honest: even the best forecasting fails when a TikTok trend goes viral or a celebrity wears your competitor's product. You need a "safety valve" for your inventory. You need the ability to liquidate or re-route stock without paying $15 in shipping fees per unit.
This is why the Closo Brand Hub is so vital for modern operators. It gives you the tools to manage your return hubs and monitor your local inventory velocity in real-time. You can’t manage what you can’t see, and you can’t scale what you can’t turn.
Honest Failure: The Slow Refund and Its Impact on LTV
I’ll admit to a major failure in my early days. We thought we were being "efficient" by only processing returns once a week. We saved on labor costs by having one person do it all on Friday.
The result? Our inventory turnover for returns was abysmal. More importantly, our customer retention tanked. Customers who were waiting 10 days for a refund weren't buying a replacement. They were going to Amazon.
We learned that "speed to refund" and "speed to restock" are the same metric. When you use a local routing model, the customer gets their money back in 30 seconds, and they are 40% more likely to spend that money back with your brand immediately. That is how you turn a "return problem" into a "velocity engine."
Summary: Turning Your Returns into an Asset
Mastering your inventory turns is a balancing act of data, physical logistics, and digital syncs. You can have the most beautiful inventory turnover formula in the world, but if your physical product is stuck in a box in Kentucky, the math won't save you. The brands that win in 2026 will be the ones that stop treating returns as a "waste" and start treating them as "local, high-velocity inventory."
By removing the friction of the shipping carrier and leveraging Closo liquidation inventory via the network of channels, you can keep your capital moving and your warehouse clean. We route eligible returns locally instead of sending everything back to the warehouse — cutting return cost from ~$35 to ~$5 and speeding refunds.
It’s time to stop letting your cash sit in cardboard boxes. It’s time to turn your inventory.
For more insights on scaling your reverse logistics or optimizing your 3PL partnerships, visit our operator's guide.
