Beyond the 1.0 Rule: Why India’s apparel retailers must move past the stock-to-sales ratio
26 November 2025, Mumbai
For more than a decade, India’s apparel retail sector has lived by a simple rule of thumb, keep the Stock-to-Sales Ratio (SSR) close to 1.0, meaning the value of stock held roughly equals the value of sales generated in a month. The logic was straightforward: avoid overstocking, prevent markdowns, and manage cash efficiently. But as the country’s Rs 4.5 lakh crore fashion market matures, this formula is showing cracks. The boom of omnichannel retailing, the volatility of micro-trends, and the sharper focus on profitability over sheer growth are exposing the SSR’s blind spots.
Retailers are now realizing that efficiency without profitability is an illusion. The time has come to move beyond SSR, toward smarter, more financially grounded metrics that reveal not just how fast inventory moves, but how profitably it does so.
Why the SSR alone misleads
The SSR’s appeal lies in its simplicity:
SSR=Net Sales Average/Inventory
A lower SSR (close to or below 1.0), traditionally signals good inventory control. Yet, it ignores one crucial dimension gross margin.
Consider the following categories
|
Category |
SSR |
Net sales |
Gross margin % |
|
Luxury Silk Saris |
1.5 (High Stock) |
Rs 10 Lakh |
65% |
|
Fast-Fashion T-Shirts |
0.8 (Low Stock) |
Rs 10 Lakh |
30% |
At first glance, the fast-fashion T-shirts appear more efficient an SSR of 0.8 indicates leaner inventory. However, when factoring in the gross margin, the luxury sari segment clearly delivers greater profitability per rupee invested. In other words, chasing a low SSR may cause retailers to underinvest in high-margin categories sacrificing profit at the altar of efficiency. This is where global best practices are pointing toward a superior benchmark: the Gross Margin Return on Inventory Investment (GMROI).
GMROI, the profit lens for modern merchandising
GMROI offers the missing financial dimension. It measures how effectively a retailer turns inventory investment into gross profit:
GMROI = Gross Margin/Average Inventory Cost
A GMROI above 1.0 indicates that inventory is generating profit. Global leaders typically target between 2.5 and 3.0.
Why GMROI outperforms SSR for Indian retailers
• Profit-centric view: GMROI focuses on margin, not just movement. It captures how well the capital locked in inventory actually earns returns.
• Category comparison: Retailers can objectively assess slow-moving, high-margin segments (like wedding wear) against fast-moving, low-margin ones (like basics).
• Cross-functional insight: It bridges the goals of the merchandising team (speed of turnover) with those of finance (profitability and ROI).
A product with a low SSR but low GMROI might be selling quickly but earning little. The corrective action is not cutting stock, but revisiting pricing or supplier costs. Conversely, a high SSR but strong GMROI signals profitable inventory worth maintaining.
Rethinking inventory a holistic dashboard
India’s next stage of retail evolution demands an integrated inventory performance scorecard combining efficiency, velocity, and profitability.
|
Advanced Metric |
What it measures |
Why it matters beyond SSR |
|
GMROI |
Gross Margin generated per rupee invested in inventory. |
Prioritizes profitability over mere turnover. Essential for high-margin categories (Bridal, Formalwear). |
|
Inventory Turnover Ratio (ITR) |
The number of times inventory is sold and replaced over a period (COGS÷Avg. Inventory). |
Focuses on velocity and cash flow. A high ITR indicates efficient liquidation, crucial for fast-fashion and trendy items. |
|
Sell-Through Rate (STR) |
Percentage of inventory sold within a specific period (Units Sold÷Starting Inventory). |
Reveals demand accuracy at a granular (SKU/Store) level. Helps identify underperforming products early before they become deadstock. |
|
Weeks of Supply (WOS) |
How long current inventory will last based on average sales rate. |
A forward-looking metric for short-term replenishment and safety stock planning, crucial for managing seasonal spikes (like festivals). |
How India’s retail map is changing
The application of these advanced metrics varies across India’s retail landscape. In Tier I markets like Mumbai, Delhi, Bengaluru retailers are dealing with omnichannel complexity balancing in-store, online, and return inventory. Here, GMROI and ITR have become essential to manage profitability and working capital. In Tier II and III cities, SSR still serves as a basic efficiency marker, but the shift must now focus on localizing assortments, shortening supply chains, and building data-driven demand forecasts.
Retailers in emerging markets can use SSR as a foundation but must increasingly adopt GMROI to ensure that expansion into smaller towns doesn’t dilute margins.
The new retail equation
In a sector where 70-80 per cent of working capital is tied up in inventory, the future will not reward those who simply sell more but those who convert every rupee of stock into disproportionate profit. The shift from SSR to GMROI marks an evolution from efficiency metrics to return metrics; from volume orientation to value optimization; from inventory management to capital productivity. India’s apparel retailers, standing at the crossroads of data analytics, consumer fluidity, and financial discipline, must now measure not just how much they sell but how profitably they do it.
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