What: Major retailers abandon century-old inventory accounting method as modern technology enables more accurate cost-based approaches.

Why it is important: This transition represents a fundamental shift in retail operations, enabling more accurate inventory management and better decision-making through modern technology, while addressing long-standing issues with traditional accounting methods.

The retail industry is moving away from the retail inventory method (RIM), a century-old accounting practice that relies on retail prices to estimate inventory value. Despite its widespread use by major retailers including Target, Walmart, and Kohl's, RIM's limitations have become increasingly apparent in the digital age. The method's reliance on retail prices for inventory valuation can distort business metrics and influence merchandising decisions, particularly around markdowns. Modern retailers like Macy's and Nordstrom are transitioning to cost accounting, which leverages current technology to provide more precise inventory tracking and valuation based on actual costs. While this transition requires significant operational changes, it promises better inventory visibility, more accurate financial reporting, and improved decision-making capabilities.

IADS Notes: The industry's move away from the retail inventory method (RIM) reflects broader retail modernisation trends. This shift aligns with Macy's November 2024 three-part strategy emphasising operational modernisation and technology integration, though the recent discovery of hidden delivery expenses highlights ongoing challenges in financial controls. The transition comes as retailers seek greater operational efficiency, with October 2024 data showing promising results from Macy's innovation strategy in modernising operations. The urgency for change is underscored by a March 2024 report identifying 4.5% average revenue loss due to inventory inefficiencies. December 2024's Q3 results from Macy's further demonstrate the complex balance between transformation initiatives and maintaining operational oversight. The shift from RIM to cost accounting represents a fundamental change in how retailers approach inventory management, reflecting the industry's broader evolution toward data-driven, technology-enabled operations that provide greater accuracy and transparency.

Nordstrom and Macy’s abandoned the ‘retail inventory method’ after using it for decades