Raise Turns...and Raise Cash!

Looking for ways to get more cash out of your retail business? Start focusing on raising turns! Here's why.

For every $1 million of annual sales, assuming 40% Gross Profit (Margin), the difference between 2 inventory turns and 3 turns is…$100,000 in cash!   

(Have a $3 million operation? That's $300,000. $5 Million in sales? That would be $500K cash. And so on.)

The dynamics of improved inventory turnover are impressive indeed!  And well-known to successful merchants. The Retail Owners Institute believes that all retailers should know and use this powerful cause-effect lever.  

Want an Example? Here Are Two: H&M and Zara 

Consider two retailers that are re-inventing apparel retailing worldwide, H&M and Zara.  By effective use of technology, both are raising inventory turns in their stores to unprecedented heights. And now, consider the ripple effect of that management focus:

• The high turns have reduced markdowns
• thus raising margins. 
• Meanwhile, stores always full of very fresh merchandise 
• excite and please their customers! What a concept!

Cause-effect, cause-effect. It all starts at the top, with the discipline to focus on ever-increasing inventory turns. H&M and Zara offer powerful examples for all retailers.

Or, as Michael Gould, Chairman of Bloomingdale's, so famously said:

"No retailer ever filed bankruptcy because their turns were too high." 

"So, what should my turns be?"

Wonder what your turns "should" be? Or, how your store compares to others like yours?

The ROI posts 5-year trend charts of 6 Key Ratio Benchmarks that retailers should be monitoring. These trend charts are available for 55 retail verticals. One of those key benchmarks is inventory turnover. 

To see how your operation compares to other stores like yours, check out the Key Ratio Benchmarks at The ROI site. Go to this page on The ROI site to find your retail segment.

"The Hacker Way" at Facebook: Sounds a Lot Like a "True Merchant"

In the 197 page prospectus for Facebook's IPO is a "letter" from founder Mark Zuckerberg. He devotes nearly one-third of his letter to explaining what he calls "The Hacker Way" at Facebook.

• "In reality, hacking just means building something quickly or testing the boundaries of what can be done."

• "Hacking is also an inherently hands-on and active discipline. Instead of debating for days whether a new idea is possible or what the best way to build something is, hackers would rather just prototype something and see what works." 

Parallels to Retailing: "The Merchant Way"

Zuckerberg goes on to explain how The Hacker Way affects the product development and management style at Facebook (where "Done is better than perfect" is painted on the walls.) Given the magnitude of Facebook's $5 Billion IPO, we will be hearing much more about The Hacker Way.

As we read about it, we were struck with its parallels to retailing. In our view, anybody can be a retailer, whether they are running a garage sale, selling on eBay, or owning their own shop.

But only a few in retailing are true merchants.  Perhaps this should now be known as "The Merchant Way"?  

First, merchants have a bias for action. That is a signature characteristic of merchants. "Get the merchandise out on the floor (or up on the site). Let's see what the customers like...ASAP!" 

Then, just as important, the need to continually adapt and adjust. And to be dispassionate about it! "Hmm...that didn't sell like we thought it would. But - look what we ran out of over here!  Who knew?? Okay, here's what we're going to do. No matter what we thought of the first item, it's a dog. Mark it down. Get it out of here!  Now, whether we personally like it or not, let's re-order this hot item."

Merchants also show relentless resilience, adaptability, and optimism. 

We encourage those who celebrate "The Hacker Way" to also pay their respects to all the true merchants among us, those who practice The Merchant Way in retailing.

Get Perspective - Now! Latest Benchmarks for 6 Key Ratios, plus GMROI

The Retail Owners Institute is known for its display of key business performance benchmark data for 50+ retail segments, from hardware stores to bookstores, to clothing stores, gift shops, wine stores, music stores, furniture stores, tire dealers, and more. These now have been updated with the latest figures for 2011.

The Institute has identified the 6 Key Ratios that are most important for retailers to monitor. And, it has charted and graphed the 5-year trends of each of these key ratios for each retail segment.  

• Turnover
• Gross Margin %
• Pre-Tax Profit %
• Debt-to-Worth Ratio
• Current Ratio
• Return on Assets %

Go here to see benchmark trends for your retail segment.

Plus, The ROI has calculated GMROI (Gross Margin Return on Inventory Investment, the #1 measure of inventory productivity) for each of the 50+ retail segments. Go here. Find the GMROI for your retail segment. How does your inventory productivity compare?? 

How Can These Benchmark Numbers Be Used?

First, for perspective! Caculate these ratios for your own business, and then see how you compare to your retail industry segment.

Second, use these benchmarks when you are setting your own target ratios for the next year.

And third, you should know that whenever you are seeking a bank loan for your business, the bankers will look at industry benchmarks such as these as they assess your store's performance.

Go here to see how your store compares!

"How high is up?" Moreover, "How LONG is up?"

In the world of retailing, every December is fascinating, challenging, and  - especially when the results are positive! - even thrilling. And this December is no exception.

For whatever reasons, the all-important consumer confidence index continues to rise.  And retail sales are far stronger than expected just months ago. In fact, November was the 6th consecutive monthly increase in retail sales!  It now appears as though they will maintain this robust nature through the end of this month.  

Retailers are basking in this "It's all good!" moment. And, with sales being up more than expected and inventories held in check, margins are likely to be higher. All in all, one of the best Holiday Seasons in years. 

So, we ask, "How high is up?"

Our estimate today is "Not very high."  But more to the point, "How long is up?"  That is, can this level of growth be sustained? 

We think not. We anticipate that the first two quarters of 2012 will look a lot like the first two quarters of 2011, bleak for retailers. Retailers should relish this fine Holiday Season, but must go into Q1 and Q2 of 2012 with discipline and restraint.

• It has been noted that consumers, who on the whole have had more debt than assets for awhile, got religion from recession-fear. For the last 2 years, they have steadily reduced their family debt burden. 
• Then, this Fall, while incomes have been stagnant, consumers started to put more spending on credit than they paid off. And apparently they are continuing that trend through the Holiday Season. My, what short memories we have!
• The unresolved European debt crisis is looking very, shall we say, "European". It lacks a needed sense of urgency. 
• For every job opening in this country now, there are, on average, 4.25 applicants. In healthy times, it's closer to a 2:1 ratio. 
• Moreover, those folks in Disneyland-on-the-Potomac seem frozen in a "Wait for the election!" mentality.

All in all, very disappointing. Especially for retailers as we start a new year. We expect the optimistic consumer confidence to be ephemeral. 

Enjoy it while you can, but don't get too used to it.

Tired of the Mystery and Voodoo Around Open-to-Buy? So Are We!

Most retailers have heard of the inventory managing tool "Open-to-Buy". (BTW, "Open-to-Buy" is slang for a budget for how much inventory to bring in, and when.) But all too often, Open-to-Buy has been shrouded in mystery. Too complex and/or too expensive.

Those days are over! The Retail Owners Institute is on a crusade to spread the word: Managing and controlling inventory IS within the reach of all retailers.

Here's the deal: Open-to-Buy is just a 4-part formula!  And any retailer, anywhere, can put that formula to work, on their own!

What can an Open-to-Buy do for a retail operation?
    •    improve margins
    •    improve cash flow
    •    reduce the time spent on inventory management
    •    help have the right merchandise in your store at the right time
    •    avoid excess inventory
    •    invaluable when delegating to buyers
    •    help you sleep at night!

How Does The ROI Take Away the Open-to-Buy Mystery? Here Are Four Answers!
The ROI is the foremost resource for retail financial training and know-how. The Institute is dedicated to taking away the mystery of retail finance. Retailers CAN control the cause-effect connections between sales, margins, expenses, profits, inventory turns, and cash flow.

Here are 4 different ways (free or very low cost) that you (or your staff) can learn more about controlling inventory with an Open-to-Buy plan.

#1. Free TOPICAL TUESDAY webinar
November 15. 10 am Pacific Time/ 1 pm Eastern Time
"Back by Popular Demand: CONTROLLING INVENTORY LEVELS"
Free registration • Go here
About 80% of retailers are over-inventoried some or all of the time.  As we approach this particular Holiday Season, having excess inventory may be especially treacherous.

Right now, controlling inventory is the #1 job of the CEO or owner. This live TOPICAL TUESDAY webinar with Pat Johnson & Dick Outcalt, Co-Founders of The Retail Owners Institute, will review the basics of inventory management, and show how The ROI's online multi-department Open-to-Buy Calculator automates the number-crunching for you. 

There will be plenty of time for Q&A, so bring your questions (and your buyers!!)  Go here to register for free

#2. On-demand info on The ROI site: CONTROLLING PROFITS, INVENTORY & CASH FLOW
This is an entire section at The ROI, dedicated to this major responsibility of retailing. Available online, 24/7, on-demand. Explanatory how-to articles that reduce the mystery. Short videos that teach, explain, and illustrate. Online calculators that automate the process (nothing to download or install; they just work!)

#3. The OPEN-TO-BUY CENTER
This is one of the new "special purpose portals" of The ROI: an entire website dedicated to Open-to-Buy! The remarkable multi-department Open-to-Buy Calculator is hosted here. Any retailer, anywhere, can do their own Open-to-Buy plans in just minutes. (Try it yourself! 1st month is just $4.95!) 

And, if you need some refresher, the Open-to-Buy Center includes articles and videos. Just look under the RESOURCES tab.

#4. BASICS of OPEN-TO-BUY eLearning Kit & Calculator
Want more structured training? Need to train your staff in Open-to-Buy? Here's the perfect answer!
The BASICS of Open-to-Buy is a self-paced, online eLearning "KIT": a step-by-step how-to training course, and an online "calculator" that automates the cause-effect number crunching.

Talk about doing away with the mystery! And it's needed more now than ever before! Go to The ROI's eLearning portal for details about this new management training tool for retailers and buyers. (Be sure to watch the short video about the BUYING PLAN Forecaster!)   "Learn it. Do it. Profit from it!"

There you have it. Four different ways that you and your staff can make Open-to-Buy planning your new best friend! Just depends on how you like to take in information. But the key: no more mystery about how much to buy, and when. (And, no more intimidation by "the experts".)