Business Education | ||||
Understanding
Retail Data
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Contents
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Understanding Retail Data. Same Store Sales. Same-store sales is a key retail barometer that retailers use to gauge the effectiveness of their stores open for one year or more. The data eliminates stores open for less than one year. This information can be used to gauge the effectiveness and sales productivity of pre-existing stores. USBR calculates same-store sales data using stores open at least one year. Excluded are stores open less than one year. USBR adds proprietary features such as moving average trend lines to determine the relative strength of a specific retail category and comparing this to the overall composite retail index. Sales Per Square Foot. Sales per square foot shows how effectively one retailer is using its store units to generate increased sales dollars. This is also a measure of sales efficiency and productivity. This comparison should be benchmarked against a company's direct retail competitors. For instance, Bed Bath & Beyond vs. Linen's n' Things. It would make less sense to compare Bed Bath & Beyond (BBDY) with Williams-Sonoma since BBDY has free standing stores while Williams-Sonoma locates stores in malls where the square footage would be much higher. Variances in sales per square foot could be due to differences in promotional/sales activity, store layout, location, demographics, regional differences, merchandise selection, or other pecuniary differences such as better service. Wide variances in sales per square foot should be investigated by management and corrective action should be taken. Sales per square foot can differ tremendously between retailers due to the types of merchandise and their rate of inventory turnover. In addition, sales per square foot will normally be higher for retailers located in destination malls than local strip shopping centers. Sales per square footage should always be rising. This means a retailer in generating more sales from its existing retail space. A declining trend is sales per square foot is an indication that retail performance is poor even if overall sales at the company are rising. Sales per square foot is a key benchmark when comparing direct retail competitors. The difference between, for instance, Walmart and K-mart gives us an illustrated example. Walmart's sales per square foot is about $422.00 versus K-mart's $235.00. The difference can be due to many factors. But, in general, K-mart's lackluster performance has been due to poor merchandise selection, uncontrollable inventory problems, and poor store site selection. These factors, among many, have caused K-mart's demise which has forced them into bankruptcy in January 2002. US Business Reporter uses a proprietary method to determine accurate sales per square foot retail data for selected retailers. In addition, USBR develops a composite and sector average to benchmark data against other companies. Gross Margin Return on Inventory Investment Gross Margin Return on Inventory Investment (GMROII) is a ratio that measures a retailer's return on every dollar that is spent on inventory. This formula measures the productivity of inventory with the relationship between total sales , gross profit margin on those sales, and the number of dollars invested in inventory. When a retailer purchases inventory, the retailer is actually investing money and the retailer must attempt to earn a return on the investment in inventory. Investing in inventory can tie up precious capital that can be used for other purposes. GMROII is expressed as a percentage or a dollar multiple that shows how many times the original inventory paid back during the year. GMROII can be used for the entire store, department or an individual merchandise item. With GMROII, you can compare the relative value of merchandise and draw conclusions about where the retailer should be concentrating efforts to achieve maximum profitability. There are two formulas for calculating GMROII . The first basic ratio is as follows: GMROII ( % )= Gross Margin (%) * [ Sales / Average Inventory at Cost ) or GMROII ( $ ) = [ Gross Margin ($) / Average Inventory at Cost ]
The higher the GMROII ratio the better return a retailer is earning on its inventory. The GMROII shows how much profit each inventory dollar produces. Inventory is one of the largest investments a retailer will make within the operation. Therefore, the retailer must carefully select and purge merchandise that will produce the greatest return on the inventory investment. GMROII is the formula to use when considering a retailer's inventory merchandise mix. However, retailers must also consider the impact of cost of goods sold, overhead and customer preferences. These factors will weigh in on the demographic profile a retailer wishes to serve. A retailer should not arbitrarily conclude on the basis of GMROII alone to reduce the stock of low profit merchandise and replace with higher profit merchandise. A retailer must have an overall mix of inventory to attract its target market. GMROII helps in managing the merchandise mix. However, the retailer must determine how much weight to give GMROII against other factors influencing the choice of inventory and in what quantity. GMROII is probably most useful in comparing specific merchandise items in a store since these figures can be ranked in each category according to its rate of return. However, it can be used at the department or store level as well. |
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