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 Is GMROI So Important?
- 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!
New, Insightful Application of GMROI
Quick • Verifiable • Sophisticated • Uniquely Retail
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.
To make this new use of GMROI easy and fast, The ROI has built an online calculator - the GMROI Growth Rater (go here). Available for free, 24/7, at The Institute.
In just 2 quick steps, you can:
- instantly calculate GMROI for a specific retail operation;
- compare that GMROI to the average for that retailer's segment.
And, here's what that comparison reveals (in just seconds!)
If your GMROI is below the average for your retail segment, beware. A cash crunch or weakening profits could be in the offing.
Is your GMROI above the average? Inventory productivity is strong; positive cash flow and/or strong profits are very likely!
Revealing Insights About Any Retailer
This works for any retailer for which you have the numbers, whether your own stores or publicly-traded companies. Or, of course, you can see how your operation compares.
Just go here on The ROI site to test this for yourself. Free!
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