Connect with us

Columns

Laurie Owen: Learn What it Takes To Be Top Dog (2)

mm

Published

on

SECOND PART of three-part series: Want to be in the Top 25% for profitability? work on your inventory. There’s simply no escaping GMROI.

Learn What it Takes To Be Top Dog (2)

Last month, I reviewed some of the findings from the latest FIT Performance Group Study. Each year, we take the financial statements of our FIT performance group members (and Profit Mastery workshop attendees) and isolate the Top 25% based on how much owner’s discretionary profit, or ODP, they make as a percentage of sales.

ODP allows you to measure profit before the owner decides how much pay to take out.

While there was not one single thing that led to a company making the Top 25%, a big factor was how efficiently they managed their cost of goods sold and all other expenses. See last month’s column). The second big factor is inventory productivity.

Retailers commonly measure the productivity of their inventory using gross margin return on inventory (GMROI). A high (good) number results when inventory investment is low (due to fast turnover) and/or gross profits are high (due to both high volume of sales and high gross profit margin as a percent of sales.

Advertisement

FIT members have shown impressive improvement in GMROI since 2005. The median GMROI for all participants increased by 10 percent. This means that in 2007, half of all participating companies earned $1.22 in gross profit for every dollar invested in inventory, up from $1.10 in 2005. The Top 25% had significantly higher inventory productivity — earning $1.37 in gross profit for every dollar invested in inventory.

GMROI is a critical benchmark, because poor inventory management is one of the leading causes of cash-flow shortages and high debt for retail jewelers.
The higher GMROI in 2007 could be attributed to several shared factors:

Performance group members set goals in several key areas, including GMROI, at the beginning of the year. They then track these benchmarks on a quarterly basis, comparing their performance against that of the Top 25%.

What gets measured gets managed. If they see their GMROI slipping, they seek out the best practices from their group’s GMROI leaders and apply them right away.

GMROI leaders tend to buy for a targeted margin, know their price points, and carry only the lines that give them the desired target. Some members will even select only vendors that have a demonstrated ability to help them reach their GMROI goals.

Laurie Owen is senior vice president at Business Resource Services. Contact her at [email protected].

Advertisement

Over the years, INSTORE has won 80 international journalism awards for its publication and website. Contact INSTORE's editors at [email protected].

Continue Reading
Advertisement

SPONSORED VIDEO

Wilkerson Testimonials

Retirement Made Easy with Wilkerson

The store was a landmark in Topeka, Kansas, but after 80 years in business, it was time for Briman’s Leading Jewelers to close up shop. Third generation jeweler and owner Rob Briman says the decision wasn’t easy, but the sale that followed was — all thanks to Wilkerson. Briman had decided a year prior to the summer 2020 sale that he wanted to retire. With a pandemic in full force, he had plenty of questions and concerns. “We had no real way to know if we were going to be successful or have a failure on our hands,” says Briman. “We didn’t know what to expect.” But with Wilkerson in charge, the experience was “fantastic” and now there’s plenty of time for relaxing and enjoying a more secure retirement. “I would recommend Wilkerson to any retailer considering a going-out-of-business sale,” says Briman. “They’ll help you reach your financial goal. Our experience was a tremendous success.”

Promoted Headlines

Advertisement

Advertisement

Advertisement

Subscribe


BULLETINS

INSTORE helps you become a better jeweler
with the biggest daily news headlines and useful tips.
(Mailed 5x per week.)

Latest Comments

Most Popular