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By The Numbers: Return on Inventory is Key

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David Brown says there are things independent store owners do better, but they can’t lose sight of return on inventory.

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[h3]Return on Inventory is Key[/h3]

By The Numbers: Return on Inventory is Key

[dropcap cap=I]ndependent Jewelry store owners do some things better than their industry peers — customer service, product knowledge, community involvement — and some things worse, most notably in getting a decent return on their inventory (known as Gross Margin Return on Inventory, or GMROI).[/dropcap]

As you can see in the table, the average GMROI for the hundreds of stores in our survey from the last 12 months was 70, or a return of about 70 cents a year for every dollar invested. That’s not good.

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It means too many stores are carrying too much inventory or applying too little markup.

The most successful stores are able to achieve a GMROI of 200 or more, often combining markups of 130 percent or more with a stock turn of 1.5 or better. That can mean huge differences in cash flow, profit and general store health. For example, if you are holding $500,000 of inventory and are achieving the average stockturn of 0.70, you have — by the standards of the country’s best independents — $250,000 invested that is giving you no return. That’s $250,000 you could be using to pay debt or invest.

The key to using the information we present each month in this column is to compare it to your own store’s performance and to identify opportunities. In this  example, let’s say your store was doing a 0.70 stockturn — in line with the industry average, but your markup was only 90 percent compared to the average of around 100 percent.

YOUR STORE   0.70 x 90% = 63 GMROI
AVERAGE STORE  0.70 x 100% = 70 GMROI

Comparing your store to one achieving the industry average you would be generating an annual gross profit of $252,000 with a $400,000 stock investment ($400,000 x 0.70 x 90%). The average store with the same stockholding would be generating $280,000 in annual gross profit ($200,000 x 0.70 x 100%). The bottom-line difference? $28,000!

The same scenario would apply if you were achieving the industry markup but had a lower stockturn — an improvement in stockturn would generate more.

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So, how to improve GMROI? Better inventory management, an awareness of the power of your best-selling products (and their margins) and a healthy markup. Many retailers believe they need a certain amount of inventory to support sales. That’s true, up to a point. But more inventory won’t automatically generate more sales. In fact, it can cost you sales if the old bloated inventory is stopping your customers from seeing your better pieces. If you have a stockturn of less than 1 then it is almost certain that you have more money tied up in inventory than you need.

By The Numbers: Return on Inventory is Key

 


 

David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. You can contact him at [email protected].

[span class=note]This story is from the June 2009 edition of INSTORE[/span]

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If you’d like to contribute your own data and receive a personalized KPI report each month, call (877) 910-3343 or e-mail: [email protected].

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Wilkerson Testimonials | Sollberger’s

Going Out of Business Is an Emotional Journey. Wilkerson Is There to Make It Easier.

Jaki Cowan, the owner of Sollberger’s in Ridgeland, MS, decided the time was right to close up shop. The experience, she says, was like going into the great unknown. There were so many questions about the way to handle the store’s going-out-of-business sale. Luckily for Cowan, Wilkerson made the transition easier and managed everything, from marketing to markdowns.

“They think of everything that you don’t have the time to think of,” she says of the Wilkerson team that was assigned to manage the sale. And it was a total success, with financial goals met by Christmas with another sale month left to go.

Wilkerson even had a plan to manage things while Covid-19 restrictions were still in place. This included limiting the number of shoppers, masking and taking temperatures upon entrance. “We did everything we could to make the staff and public feel as safe as possible.”

Does she recommend Wilkerson to other retailers thinking of retiring, liquidating or selling excess merchandise? Absolutely. “If you are considering going out of business, it’s obviously an emotional journey. But truly rest assured that you’re in good hands with Wilkerson.”

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David Brown

By The Numbers: Return on Inventory is Key

Published

on

David Brown says there are things independent store owners do better, but they can’t lose sight of return on inventory.

{loadposition davidbrownheader}

[h3]Return on Inventory is Key[/h3]

By The Numbers: Return on Inventory is Key

[dropcap cap=I]ndependent Jewelry store owners do some things better than their industry peers — customer service, product knowledge, community involvement — and some things worse, most notably in getting a decent return on their inventory (known as Gross Margin Return on Inventory, or GMROI).[/dropcap]

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As you can see in the table, the average GMROI for the hundreds of stores in our survey from the last 12 months was 70, or a return of about 70 cents a year for every dollar invested. That’s not good.

It means too many stores are carrying too much inventory or applying too little markup.

The most successful stores are able to achieve a GMROI of 200 or more, often combining markups of 130 percent or more with a stock turn of 1.5 or better. That can mean huge differences in cash flow, profit and general store health. For example, if you are holding $500,000 of inventory and are achieving the average stockturn of 0.70, you have — by the standards of the country’s best independents — $250,000 invested that is giving you no return. That’s $250,000 you could be using to pay debt or invest.

The key to using the information we present each month in this column is to compare it to your own store’s performance and to identify opportunities. In this  example, let’s say your store was doing a 0.70 stockturn — in line with the industry average, but your markup was only 90 percent compared to the average of around 100 percent.

YOUR STORE   0.70 x 90% = 63 GMROI
AVERAGE STORE  0.70 x 100% = 70 GMROI

Comparing your store to one achieving the industry average you would be generating an annual gross profit of $252,000 with a $400,000 stock investment ($400,000 x 0.70 x 90%). The average store with the same stockholding would be generating $280,000 in annual gross profit ($200,000 x 0.70 x 100%). The bottom-line difference? $28,000!

Advertisement

The same scenario would apply if you were achieving the industry markup but had a lower stockturn — an improvement in stockturn would generate more.

So, how to improve GMROI? Better inventory management, an awareness of the power of your best-selling products (and their margins) and a healthy markup. Many retailers believe they need a certain amount of inventory to support sales. That’s true, up to a point. But more inventory won’t automatically generate more sales. In fact, it can cost you sales if the old bloated inventory is stopping your customers from seeing your better pieces. If you have a stockturn of less than 1 then it is almost certain that you have more money tied up in inventory than you need.

By The Numbers: Return on Inventory is Key

 


 

David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. You can contact him at [email protected].

Advertisement

[span class=note]This story is from the June 2009 edition of INSTORE[/span]

If you’d like to contribute your own data and receive a personalized KPI report each month, call (877) 910-3343 or e-mail: [email protected].

{loadposition xtra-browncolumn}

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Wilkerson Testimonials | C. Aaron Peñaloza Jewelers

Wilkerson Paves the Way for the Future

After serving the San Antonio, Texas community for decades, C. Aaron Peñaloza Jewelers closed its doors earlier this year. Aaron and Mary Peñaloza, the store’s owners, chose Wilkerson to handle their retirement sale. “In the first six days, we did six months’ worth of business,” says Aaron. “In the first three weeks, we did a year’s worth of business.” Mary Peñaloza says Wilkerson’s ability to tailor the sale to their store’s requirements really made it all so much easier. “They are professionals,” she says. “They know what they’re doing. They have a plan, but they will listen to you and adjust that plan to your needs.”

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