skip to main |
skip to sidebar
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:
- 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.
In our work with retail situations across North America, we have observed three kinds of owners:
- Those who make things happen
- Those who watch things happen
- 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!"
How Do Your Stores Compare?
One of the most popular features of The ROI is the unique Performance Benchmarks Trends we focus on, chart out and display for 54 separate retail segments. These are available to you online, anytime, 24/7, for free.
The ROI has selected 6 Key Ratios (of more than 40) for retailers to regularly monitor. Then, The ROI presents 5-Year Trend Charts for each of these key ratios.
- Pre-Tax Profit
- Gross Margin
- Inventory Turnover
- Debt-to-Worth Ratio
- Current Ratio
- Return on Assets (ROA)
Go here to find your retail segment. How do your stores compare? Are you trending the same ways as other stores like yours?
"So, how can these benchmark numbers be used by retailers?"
- For perspective. Calculate these ratios for your own business, and then see how you compare to your retail industry segment.
- Use these benchmarks when you are setting your own target ratios for the next year.
- You should know that when you are seeking a bank loan for your business, the bankers will look at these industry benchmarks as they assess your store's performance.
Have questions about these benchmarks or what they mean?
Be sure to take advantage of the free Benchmarks Resource Center, and its How, Why and Do-It-Now Resources.
All these specialized resources are available online, anytime, 24/7, for free. And only from The ROI!
Meanwhile, here are some useful reminders about the Benchmarks
- The 54 retail segments featured at The ROI reflect the definitions and designations of the North American Industrial Classification System.
- Retailers may need to examine the benchmark numbers in more than one segment to get perspective on their own store's performance, particularly if their store does not exactly fit the NAICS category.
- The numbers used for the charts on The ROI site are from the middle two quartiles; that is, neither the top quartile (top 25%) nor the bottom quartile (bottom 25%).
As of today, there are only 9 really good selling days left before Christmas. So now, right now, is the time for merchants to edit. And that, of course, means being smart about markdowns.
Take a dispassionate look at your inventory, especially the seasonal goods. The goal: NO seasonal merchandise left over at the end of the season!
Whether you call it "editing", or "thinning the herd", the point is the same. Do whatever it takes to move out that seasonal merchandise!
But of course, you also want the most margin from those goods (some of which sell only at this time of year.) So, that's where the fun begins: you must be the Artful Merchant. Just don't wait!
4 Keys to Artful Seasonal Markdowns
- As you know, in markdowns, timing IS everything.
You must act now, when you have the most customer traffic in your stores. And, these shoppers are still focused on buying gifts! (The folks who come in after Christmas - the price-hounds, bottom-fishers, cherry-pickers - are a different group altogether.)
- Use a scalpel, not a machete.
Be a merchant! Those "entire store on sale" tactics
shriek desperation.
- Make your markdowns matter.
Be at least 1/3 to 1/2 off. Even "below cost" if needs be. (The pros know the original cost is irrelevant.) Get whatever cash you can for the merchandise. Otherwise, 3 weeks from now, well after Christmas, those markdowns will cost you 60%, 70% or 80% off.
- Start now, and stay on it.
Every day, find more slow-selling (or non-selling) seasonal goods, and mark them down.
Remember the goal: NO seasonal goods left after the season is over! Let's go! Take markdowns now. And have fun!
Want More Tips for Smart Markdown Management?
Sit back and watch this lively webinar - Markdowns: Timing Is Everything! - from our Recorded Live at TOPICAL TUESDAYS archive.
(Unlimited free access, online anytime, for ROI Members. Or, get 3-Day Online Access for just $9.95.)
Chris Morran of The Consumerist, a blog from the Consumer Reports people, featured the menu posted at a cafe in France (appropriately enough, in Nice!)
Three different prices for a cup of coffee, depending on how politely you order.
- "Coffee, please." --- $5.85
- "Good day! Coffee, please." --- $1.95
Yes, that's right. Your coffee costs much more if you are abrupt or rude!
Apparently it began as a bit of fun from the frustrated workers, who had grown weary of being treated rudely by the customers, Morran writes. And now, it's part of the actual posted menu.
"It started as a joke because at lunchtime people would come in very stressed and were sometimes rude to us when they ordered a coffee," explains the cafe's owner. "I know people say that French service can be rude but it's also true that customers can be rude when they're busy."
The owner says he hasn't yet been compelled to charge anyone the higher price and that the sign has resulted in his regular customers now being overly polite when they order.
"They started calling me 'your highness' when they saw the sign," he say
A timely idea you can use in your stores?
What a great way to keep retailing fun! And to gently remind customers that customer service IS a two-way street!
Oh. But of course, "Thank you!" for the idea!!
