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:
- instantly calculate GMROI for a specific retail operation;
- 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.
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