docThe True Measure of Retail – GMROI – And What It Takes To Grow It
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The True Measure of Retail – GMROI – And What It Takes To Grow It
The True Measure of Retail – G.M.R.O.I. – And What It Takes To Grow It Paul Erickson, RMSA Paul Erickson Senior Vice President www.rmsa.com Info@rmsa com [email protected] Metrics Matter What gets measured – gets changed What gets rewarded – gets done If you don’t don t measure it, you can’t change it, and if you don’t reward change it will not happen pp Metrics Matter What gets measured – gets changed What gets rewarded – gets done If you don’t don t measure it, you can’t change it, and if you don’t reward change it will not happen pp Metrics Matter What gets measured – gets changed What gets rewarded – gets done If you don’t don t measure it, you can’t change it, and if you don’t reward change it will not happen pp GMROI Nature of Merchandise 1 Frequency of purchase 1. 2. High purchase frequency=lower replacement price 3. Low purchase frequency = higher replacement price 4. “Deliberation” merchandise Nature of Merchandise 1 Frequency of purchase 1. 2. High purchase frequency=lower replacement price 3. Low purchase frequency = higher replacement price 4. “Deliberation” merchandise Nature of Merchandise 1 Frequency of purchase 1. 2. High purchase frequency=lower replacement price 3. Low purchase frequency = higher replacement price 4. “Deliberation” merchandise Nature of Merchandise 1 Frequency of purchase 1. 2. High purchase frequency=lower replacement price 3. Low purchase frequency = higher replacement price 4. “Deliberation” merchandise Definition Gross Margin G M i Return R t on Investment I t t– A measurement of the relationship between inventory turnover and gross margin dollars. dollars It simply says that for each dollar tied up in inventoryy at cost x number of dollars that have been earned in gross margin = Gross Margin Return on Investment Formula Annualized Gross Margin GMROI = A Average IInventory t att Cost C t Earn ‘n Turn Calculation Example #1 $500GM = $2.00 GMROI $250 ACI Example #2 $500GM = $5.00 GMROI $100 ACI Warren Buffet What is a Good GMROI? Fast Sellingg – Low Margin g • • • • • • • Sell 156 units a year Cost is $5 – Retail is $7 K Keep 6 on hhand d att all ll times ti Investment cost is $30 ($5 x 6 units) 156 unit sales at $2 GM = $312 GM $$312 / $$30 $10.40 GMROI Slow Selling g – High g Margin g • • • • • • • Sell 2 units a year Cost is $325 – Retail is $999 K Keep 2 on hhand d att all ll times ti Investment cost is $650 ($325 x 2 ) 2 unit sales with a GM of $674 = $1348 $1348 / $650 $ $ = $2.07 GMROI Item Comparison Item A Item B Fast Selling – Low Margin Slow Selling – High Margin • GMROI – 28.6% • Not so profitable • GMROI – 67.5% • Highly profitable GMROI & inventory turnover are the most important measurements for vendor performance f att retail! t il! Vendor Comparison Vendor A Vendor B • Sales – $500k • Sales - $500k • Gross $ - $240 (48%) • Gross $ - $220 (44%) • Turns – 22.00 • Turns 44.0 0 Let’s Compare GM$ $240k Vendor A Vendor B $220k AVG Cost $ $130k ROI $1.84 $57 5k $57.5k $3 82 $3.82 Three Keys to Retail Success Three Keys y to Retail Success IInventory t Turn Revenue R Growth Gross G Margin Three Keys y to Retail Success IInventory t Turn Revenue R Growth Gross G Margin Three Keys y to Retail Success IInventory t Turn Revenue R Growth Gross G Margin outdoorindustry.org/OU Recorded Sessions now available for on-demand viewing: • Inventory Turnover – Three Steps to Purchasing Smarter, Turning More and Making More Money • Shoulder-Season Shoulder Season Discounting Strategies – The Eight Truths of Markdowns • The Mysteries Behind Initial Mark-up – Pricing Strategies to Improve Your Bottom Line • The True Measure of Retail – GMROI – and What it Takes to Grow It Thank You. You outdoorindustry.org/OU Paul Erickson RMSA Retail Solutions www.rmsa.com perickson@rmsa com [email protected]
