INVENTORY IS YOUR RETAIL HEART Is it healthy? Paul Erickson RMSA Retail Solutions

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1 INVENTORY IS YOUR RETAIL HEART Is it healthy? Paul Erickson RMSA Retail Solutions

2

3

4 Customers judge your store everyday

5 Customers are increasingly challenging The customer of today is NOT the customer of yesterday

6 They are increasingly... Time poor Better educated, skeptical, cynical and demanding Quick to complain and slow to forgive Want it fast and now

7 Number one service complaint

8 Inventory The HEART of a retail store

9 Perfect Condition This month s sales forecast is 12 pens How many do we need? What if they come in 12 colors? How many do we need now? What if they come in 2 sizes?

10

11 Zizzybaloobah/Fickr

12

13 Age your inventory

14 You are operating a store not a museum Never hold a birthday party for merchandise Always value your inventory at selling or retail value

15 Simple Technique Color code your price tickets so you can visually check the age: Light blue received Light green received White received Lt tan received Lt yellow - received Lt blue received Lt pink received 2012 Q3 (july sept) 2012 Q4 (oct dec) 2013 Q1 (jan mar) 2013 Q2 (apr jun) 2013 Q3 (jul sept) 2013 Q4 (oct dec) 2014 Q1 (jan mar)

16 Money-saving Tip! Identify anything in your store that is more than six months old If 20-30% is older than six months You have a potential problem If over 30% of your stock is that old You have A problem that needs to be addressed NOW!

17 inventory turnover a key indictor of how well merchandise is performing at retail does not appear on a retailer s P&L accounting does not factor in the element of time

18 definition

19 the frequency that a store sells its average dollar inventory a measure of the inventory efficiency and is expressed as a ratio

20 apples to apples retail inventories to retail sales cost inventories to cost of goods sold

21 the formulas annual retail sales average inventory at retail - OR - annual cost of goods sold average inventory at cost

22 alternative concepts

23 monthly Annual Turn Avg. Monthly Sell -Thru 1.5 = 13% 2.0 = 17% = 25% = 33% = 50%

24 turns = weeks supply 52 weeks / turn rate 1.5 turns 52/ weeks 2.0 turns 26.0 weeks 3.0 turns 4.0 turns 20.8 weeks 17.3 weeks

25 52 weeks 2.0 Turns = 26 Week Supply

26 26 Weeks to Sell an item October 9 th November December January February March April 9 th

27 increase turns increases cash flow an improvement of only 1 week in annual sell-through increases flow by approximately 1% of annual sales

28 25 Weeks to Sell an item October 9 th November December January February March April 2 nd

29

30 The $1,000,000 BOOTS

31 The $1,000,000 BOOTS 50% Markup

32 The $1,000,000 BOOTS $500,000

33 The $1,000,000 BOOTS Open Doors January 2 nd

34 month operating expenses

35 Boots sell on December 24 th as a last minute holiday gift Jan Feb Mar Apr May June Jul Aug Sept Oct Nov Dec

36 End-of-Year Income Statement Sales $1,000,000 Cost of goods sold $ 500,000 Gross profit $ 500,000 Less expenses ($34K x 12 months) $ 408,000 Net profit $ 92,000

37 $500,000

38 Open Doors January 2 nd

39 Boots sell on December 24 th of Year 2 as a last minute holiday gift Jan Feb Mar Apr May June Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May June Jul Aug Sept Oct Nov Dec

40 Year 2 End-of-Year Income Statement Sales $1,000,000 Cost of goods sold $ 500,000 Gross profit $ 500,000 Less expenses ($34K x 24 months) $ 816,000 Net loss $ (316,000)

41 $500,000

42 Open Doors January 2 nd

43 Boots sell the last day of January!

44 End of 2 Years Income Statement Sales $ 800,000 Cost of goods sold $ 500,000 Gross profit $ 300,000 Less expenses ($34K x 1 month) $ 34,000 Net profit $ 266,000

45 Retail Heaven

46

47 COSTCO Does not own the inventory 8000 SKUs IMU ceiling 15% Membership fees produce entire net profit Customer average annual income +$100,000 Always something new

48 . WAL-MART

49 steps to RETAIL HEAVEN negotiate longest payment terms possible sell at least half before you have to pay sell it before you pay for it

50 steps to RETAIL HEAVEN negotiate longest payment terms possible` sell at least half before you have to pay sell it before you pay for it

51 60 day terms & 3 turns accomplishes this goal Example 3 turns = days supply (365 / 3) Approximately half the items are sold by the time the invoice is due

52 steps to improve cash flow negotiate longest payment terms possible sell at least half before you have to pay sell it before you pay for it

53 90 day terms & 4 turns accomplishes this goal Example 4.0 turns = 91 days supply (365 / 4.0) For all practical purposes the entire inventory is sold by the time the invoice is due

54 your call to action

55 three things plan your sales & inventory to achieve faster turns markdown slow selling merchandise within planned month's supply window use MIN/MAX and autoreplenishment systems

56 three things plan your sales & inventory to achieve faster turns markdown slow selling merchandise within planned month's supply window use MIN/MAX and autoreplenishment systems

57 three things plan your sales & inventory to achieve faster turns markdown slow selling merchandise within planned month's supply window use MIN/MAX and autoreplenishment systems

58 GMROI

59 Definition Gross Margin Return on Investment A measurement of the relationship between inventory turnover and gross margin dollars. It simply says that for each dollar invested in inventory at cost x number of dollars that have been earned in gross margin.

60 Formula GMROI = Annualized Gross Margin Average Inventory at Cost

61 Earn n Turn Calculation Example #1 $500GM $250 ACI Example #2 $500GM $100 ACI = $2.00 GMROI = $5.00 GMROI

62

63 Warren Buffet

64 What is a Good GMROI?

65 GMROI & inventory turnover are the most important measurements for vendor performance at retail!

66 Vendor Comparison Vendor A Vendor B Sales $500k Sales - $500k Gross $ - $240K (48%) Gross $ - $220k (44%) Turns 2.0 Turns 4.0

67 Let s Compare GM$ AVG Cost $ ROI Vendor A $240 $130k $1.84 Vendor B $220k $57.5k $3.82

68 Three Keys to Retail Success

69 Three Keys to Retail Success Inventory Turn Revenue Growth Gross Margin

70 Three Keys to Retail Success Inventory Turn Revenue Growth Gross Margin

71 Three Keys to Retail Success Inventory Turn Revenue Growth Gross Margin

72

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