Retail,Metrics,Key,Performance business, insurance Retail Metrics: Key Performance Indicators ( KPI’s) – Turn

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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;}In keeping with the theme of my last article, whichwas about our KPI’s (Key Performance Indicators – Days of Supply, Turn, Stock toSales Ratio, Sell Through Percentage and Gross Margin Return on Investment), I’m going to go into more detail about thisthing called inventory.  In that lastarticle, (link) I covered Days of Supply. So, this article is about another aspect of inventory management, thenext KPI you can use to better manage profitability in your store - Turn.I used the comparison of managing a retail store to being an airplanepilot.  I think that is a pretty goodside-by-side comparison because when you are in a store, while you may not benavigating a jumbo jet loaded with people through the air from one point toanother, your decisions about pricing, what to sell, how much of something tobuy, where to buy it, who to hire, etc. do impact the lives of other people,even if it’s just you and your family. How profitable your retail store is goes hand in hand with the properreading of the statistical data you should be getting from the metrics andreports from your point of sale system (POS). Interpreting these reports is like reading a map and making theappropriate adjustments to navigate through to the other side. And the otherside in retail is being profitable.  This brings me to the next KPI which is Turn.  We know that Turn is how many times an individual inventory item is replaced in thecourse of a year, what your average stock level is and how many times per yearthat amount is sold out and restocked. This is a very critical statistic to monitor because it will tell youwhen to order, how much to order, what to sell and how to sell it.An easy example is if you have an averageinventory of 100 jackets in a year and you sell 100 jackets every 4 months,your inventory "turns over" or is totally replaced, 3 times peryear.  Therefore, your turn would be 3 onthose jackets.  Each inventory item hasits own turn over number.  You can figureout the Turn by dividing the annual sales of that item by the average inventoryof that same item.  By knowing thisformula, you can better manage an optimal Turn and work to increase your Turnas much as possible, without having to take markdowns.Turn is often increased by reducing sellingprice.  However, this obviously reducesprofit.  So if your cost on the stock ofjackets is $50 and you sell them at $99.99, you have a profit of $49.99.  But, if you find that you need to increasethe turn and the only way is to reduce the price, you will eat into the profitof $49.99.  A balance needs to be reachedbetween the proper turn, and the proper profit margin.  How do you find this balance?  You can do this with the help of the rightreporting from your POS.   I know I keep pushing this point about a good POSsystem, but a successful manager knows the way you make decisions is not only ongut instinct.  You need statistical data onwhich to base educated and logical decisions. If a pilot used only his gut to fly an airplane, I don’t think anyonewould ever want to fly with that pilot. Concrete facts are the best way to make a decision.  A fuel gauge telling you the fuel tank isempty, has no emotion, isn’t upset that your top sales person called in sickand sales are down.  That gauge isn’thaving a bad day.  It tells you like itis, with no outside influences getting in the way.  Your POS reports are the same way – noemotion, just straight up raw information, unfiltered, ready to be utilized forprofitability. It then is all up to you to figure out how to properly read theinformation you are being given to make the best possible choices you can toget the most bang for your buck.The first things you will see on your Turn reportare the inventory items you have in huge quantity that have a long turn.  The piles of inventory that have a long turnhave precious dollars tied up, unable to be reinvested.  Now that you’ve seen that, stop ordering anymore of that item, run a special, promote that item and get rid of it asquickly as you can.  Move that productoff the floor in whatever way you can. No one is ever happy to do a mark down, but there’s a plus side to doinga mark down and selling down that pile of inventory at a reduced rate.  The plus side is that when you mark it downand the inventory starts moving, money is now coming in and can be reinvested,whereas before you did the mark down and the inventory started to move, youweren’t getting your money untangled and back in your pocket.  It can be quite amazing what happens when youget an old pile of merchandise suddenly moving out of the store and how thataffects the rest of the merchandise and sales. Try it.  You’ll be glad you did.Now, take this report and look at it along withthe Days of Supply and see where you can be smarter in purchasing andreordering decisions.  These reports are theplace to start helping evaluate what your next plan of action will be.  Back to the pilot reference above.  There are several things you need to look atto navigate your store in the most profitable way.  The Days of Supply and Turn reports are thestarting points because you need to look at both of these reports and get thedata from each in order to make the best decisions.The all encompassing goal of retail is to makemoney and make as much money as you can with little loss.  Having a good turn with the most profit isideal.  You want to get your money out ofa piece of merchandise that has a long turn and get it into something thatturns faster.  This will get you moreprofit more quickly.  So, take your reports on Turn and go see what items you need to getmoving out of the store and free up your money so you can reinvest it into somemerchandise that will turn quicker and make more money.Next time, I will cover Stock to Sales Ratio.  Until then, let’s stay profitable!