Retail,Matrix,Part,Normal,fals business, insurance Retail Matrix - Part II

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Normal 0 false false false MicrosoftInternetExplorer4 /* Style Definitions */ table.MsoNormalTable{mso-style-name:"Table Normal";mso-tstyle-rowband-size:0;mso-tstyle-colband-size:0;mso-style-noshow:yes;mso-style-parent:"";mso-padding-alt:0in 5.4pt 0in 5.4pt;mso-para-margin:0in;mso-para-margin-bottom:.0001pt;mso-pagination:widow-orphan;font-size:10.0pt;font-family:"Times New Roman";mso-ansi-language:#0400;mso-fareast-language:#0400;mso-bidi-language:#0400;}Previously, I have talked about RetailMetrics and the importance of Key Performance Indicators (KPI's) in runningyour business. Let's take a closer look at how analyzing your inventoryperformance on a regular basis can keep your business on track. A retailer has five decisions to make onany given item in stock: Mark up?Mark down?Buy more?Buy less?Don't do anything?How does aretailer know what to do and when to do it? Well, the answer to that milliondollar question lies in KPI's. Let's take a look at what I consider tobe the five most important retail KPI's that should be easily generated fromyour software program. The first thing I look at is Days ofSupply. Days of Supply is a key statistic which tells you how long it will takeyou to sell out of your present stock, assuming that sales continue at the samerate as recent past sales. For non-seasonal merchandise which sells at arelatively steady rate, you could use a longer basis period, such as 30 or 60days. For seasonal merchandise, the rate of sale changes rapidly, and you wouldwant to use a shorter period. Days of Supply analyzes the last periodof sales, and based upon that rate, gives you the amount of days of supply lefton that style. It is based upon the numbers of days of selling that you tellyour system to examine. Using this information, you can reduceyour days of supply to match lead times, without losing sales. The next piece of information I look atis Turn. Turn is a measure of how many times your inventory is replaced in thecourse of a year. Example: If you have an average inventoryof 100 jackets in a year and you sell 100 jackets every 4 months, yourinventory “turns over” or is totally replaced, 3 times per year. Therefore,your turn is 3. Turn is often increased by reducingselling price. However, this obviously reduces profit. A balance needs to bereached between the proper turn, and the proper profit margin. Turn has a formula, Annual Sales ÷Average Inventory. By knowing this formula, you can better manage anoptimal Turn and increasing your Turn as much as possible, without having totake markdowns, thus increasing your profit. Moving on to the next one - Stock toSales Ratio. This is the ratio of the inventory available for sale versus thequantity actually sold. For every unit sold, how many units were on hand? Stockto Sales Ratio is the exact inverse of Sell Thru Percentage (see below). When getting into inventory, Stock toSales Ratio is a key statistic for measuring whether or not you areoverstocked. If your Stock to Sales Ratio rises, and there is not anaccompanying rise in sales, then you are adding more stock without increasingsales, which will reduce your profitability. If your Stock to Sales Ratiodecreases, and your sales do not decrease, then you will have increasedprofitability. You can use this formula to calculate andmanage your stock accordingly, Averaged Units of Inventory Available ÷ UnitsSold. This will reduce your Stock to Sales Ratio as low as possible,without losing sales. This brings us to, Sell Thru Percentage.This is the percentage of stock you had available for sale which was actuallysold. Sell Thru Percentage is the exact inverse of Stock to Sales Ratio (seeabove). Sell Thru Percentage is especiallyimportant for seasonal merchandise, since the goal is to be out of stock ofseasonal merchandise by the end of the season. Therefore, you can look at youryear-to-date sales of seasonal merchandise, and be sure that you were out ofstock by the end of the season. The formula to calculate Sell ThruPercentage is, Average Units Sold ÷ Averaged Units of Inventory Available,which is the exact reverse of Stock to Sales Ratio. Since this calculationprimarily concerns seasonal merchandise, plan out the percentages to be soldout of by month, so that you can ensure being out of stock by season end. Thiswill give you better control for accurate stock and sales management. Now we look at everyone's favorite, GrossMargin Return on Investment, (GMROI). For every dollar invested, how manydollars did I get back? GMROI calculates the return based on thegross margin from sales. For example, if you purchase $2,000 of inventory, andsold it all in the same year for $6,000, your profit would be $4,000. Thereturn on your investment of $2,000 was $4,000. The GMROI in this example is$4,000/$2,000 = 2. GMROI is closely related to Turn asmentioned above. If your Turn increases, your average inventory cost will belower (relative to your profit), and thus the greater the return on yourinvestment. Your merchandising goal is to increase the GMROI as high as youcan, by keeping turn high, at high margins. When trying to figure out GMROI, use thisformula: (SalesMargin Dollars ÷ Months Passed) x 12Averaged Inventory Cost As an additional note, always remember toset objectives for the merchandise you are buying. For example, when buying anew style of jeans, set a target for how many pairs should be sold by somereasonable time frame like, sell 12 pairs in the first week. This is importantso when you run your KPI report you will know if the item is performingaccording to your expectations. If not, then you can take quick decisiveactions to sell off that item before you get stuck with it and have to mark itdown in an unprofitable fashion. Using these key pieces of information andreporting, you will better manage your inventory, gross profitability and haveless mark downs in your store. Your point of sale, properly set up and usedwill help give you all of this information so that you can optimally manageyour store. So, here's to more profit and better store management!