INVENTORY IS YOUR RETAIL HEART Is it healthy? Paul Erickson RMSA Retail Solutions
Customers judge your store everyday
Customers are increasingly challenging The customer of today is NOT the customer of yesterday
They are increasingly... Time poor Better educated, skeptical, cynical and demanding Quick to complain and slow to forgive Want it fast and now
Number one service complaint
Inventory The HEART of a retail store
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?
Zizzybaloobah/Fickr
Age your inventory
You are operating a store not a museum Never hold a birthday party for merchandise Always value your inventory at selling or retail value
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)
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!
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
definition
the frequency that a store sells its average dollar inventory a measure of the inventory efficiency and is expressed as a ratio
apples to apples retail inventories to retail sales cost inventories to cost of goods sold
the formulas annual retail sales average inventory at retail - OR - annual cost of goods sold average inventory at cost
alternative concepts
monthly Annual Turn Avg. Monthly Sell -Thru 1.5 = 13% 2.0 = 17% 3.0 4.0 6.0 = 25% = 33% = 50%
turns = weeks supply 52 weeks / turn rate 1.5 turns 52/1.5 34.6 weeks 2.0 turns 26.0 weeks 3.0 turns 4.0 turns 20.8 weeks 17.3 weeks
52 weeks 2.0 Turns = 26 Week Supply
26 Weeks to Sell an item October 9 th November December January February March April 9 th
increase turns increases cash flow an improvement of only 1 week in annual sell-through increases flow by approximately 1% of annual sales
25 Weeks to Sell an item October 9 th November December January February March April 2 nd
The $1,000,000 BOOTS
The $1,000,000 BOOTS 50% Markup
The $1,000,000 BOOTS $500,000
The $1,000,000 BOOTS Open Doors January 2 nd
$34,000 @ month operating expenses
Boots sell on December 24 th as a last minute holiday gift Jan Feb Mar Apr May June Jul Aug Sept Oct Nov Dec
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
$500,000
Open Doors January 2 nd
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
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)
$500,000
Open Doors January 2 nd
Boots sell the last day of January!
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
Retail Heaven
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
. WAL-MART
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
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
60 day terms & 3 turns accomplishes this goal Example 3 turns = 121.6 days supply (365 / 3) Approximately half the items are sold by the time the invoice is due
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
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
your call to action
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
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
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
GMROI
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.
Formula GMROI = Annualized Gross Margin Average Inventory at Cost
Earn n Turn Calculation Example #1 $500GM $250 ACI Example #2 $500GM $100 ACI = $2.00 GMROI = $5.00 GMROI
Warren Buffet
What is a Good GMROI?
GMROI & inventory turnover are the most important measurements for vendor performance at retail!
Vendor Comparison Vendor A Vendor B Sales $500k Sales - $500k Gross $ - $240K (48%) Gross $ - $220k (44%) Turns 2.0 Turns 4.0
Let s Compare GM$ AVG Cost $ ROI Vendor A $240 $130k $1.84 Vendor B $220k $57.5k $3.82
Three Keys to Retail Success
Three Keys to Retail Success Inventory Turn Revenue Growth Gross Margin
Three Keys to Retail Success Inventory Turn Revenue Growth Gross Margin
Three Keys to Retail Success Inventory Turn Revenue Growth Gross Margin