New! Look What Else GMROI Can Reveal

The Retail Owners Institute® is well-known for its focus on GMROI - Gross Margin Return on Inventory (Investment). 

In our view, this dynamic tool is the #1 measure of inventory productivity. And frankly, if you are in retail, you had best be focused on inventory productivity

As a reminder, GMROI tells us this: "How many Gross Margin dollars am I getting each year for every dollar I have invested in inventory during that year?"

Why do we like GMROI so much?

It is multi-dimensional. Instead of looking only at margins, or only at inventory turns, it combines them. That's why some call it "earn 'n turn". It shows you which merchandise is delivering the most bang for your buck. 

It is quick to calculate, and a wonderfully objective measurement, whether you are comparing stores, departments within stores, or, especially, vendors!

And now, a new, insightful use for GMROI

When used to compare a given retailer's performance versus their retail segment, we suggest that GMROI can be the single-most-telling measure of a retailer's financial viability.

Quick • Verifiable • Sophisticated • Uniquely Retail

To make this new use of GMROI easy and fast, The ROI has built an online calculator (go here), available for free at The Institute. In 2 quick steps, you can:

1. instantly calculate GMROI for a specific retail operation;
2. compare that GMROI to the average for that retailer's segment. 

Here's what that comparison reveals (in just seconds!)

• If their GMROI is below the average for their retail segment, beware; a cash crunch or weakening profits could be in the offing.
• Is their GMROI above the average? Inventory productivity is strong; positive cash flow and/or strong profits are very likely!  

New Insights on Major Retailers

This works for any retailer for which you have the numbers, whether your own stores or publicly-traded companies. 

Just for fun, using their most recent financial statements (for 2012), here are the discoveries about some major retailers.

Wonder about other retailers? Or want to know how your stores compare? Go here on The ROI site to test this for yourself. 

Retailers: "Turn on Your Financial Headlights!"

In our work with retail situations across North America, we have observed three kinds of owners:

1. Those who make things happen
2. Those who watch things happen
3. And those who say, "Uhh, what happened?!?"

Think for a moment about these owners who have become mere bystanders in their business. It's as if they are driving a car at night without the headlights on! 

The car goes just fine; it doesn't need headlights to run. But no one would drive like that, especially on a freeway at high speeds. You want to be able to see ahead, to know what's coming, to anticipate adjustments, and make them in time to stay on the road. 

The same is true in every retail business. 

Your business may be barreling down the highway without you being able to see ahead. Meanwhile, especially at this time of year, the accountants and bookkeepers will be very concerned with tabulating financial history. They are just recounting - to the penny! - where you already have been.

But as the owner of a business, your major strategic responsibilities include projecting and preparing for the future. No crystal ball required; just your experience and good judgment!

As this new calendar year begins: 

• Take time to look ahead: What trends are affecting your customers? Your competitors? Your suppliers? Your local community?
• Anticipate "what's next?" in your retail segment, from new products to fickle customers. Tap into the opinions of others, whether through your buying groups, trade associations, business magazines, online resources.
• Then, turn your attention inward. As you consider how best to respond to these pressures in the marketplace, compare the varying financial implications of those "What would happen if I...?" choices. 

Or, in other words, now is the time to "Turn on your financial headlights!"