The True Measure of Retail –G.M.R.O.I. – And What It Takes To Grow It

Paul Erickson, RMSA

Paul EricksonPaul EricksonSenior Vice President

www.rmsa.comInfo@rmsa comInfo@rmsa.com

Metrics Matter

What gets If you don’tWhat getsWhat gets measured – gets

changed

If you don t measure it, you can’t change it,

What gets rewarded – gets

doneand if you don’t

reward change it will not happenpp

Metrics Matter

What gets If you don’tWhat getsWhat gets measured – gets

changed

If you don t measure it, you can’t change it,

What gets rewarded – gets

doneand if you don’t

reward change it will not happenpp

Metrics Matter

What gets If you don’tWhat getsWhat gets measured – gets

changed

If you don t measure it, you can’t change it,

What gets rewarded – gets

doneand if you don’t

reward change it will not happenpp

GMROI

Nature of Merchandise1 Frequency of purchase1. Frequency of purchase

2. High purchase frequency=lower replacement price

3. Low purchase frequency = higher replacement price

4. “Deliberation” merchandise

Nature of Merchandise1 Frequency of purchase1. Frequency of purchase

2. High purchase frequency=lower replacement price

3. Low purchase frequency = higher replacement price

4. “Deliberation” merchandise

Nature of Merchandise1 Frequency of purchase1. Frequency of purchase

2. High purchase frequency=lower replacement price

3. Low purchase frequency = higher replacement price

4. “Deliberation” merchandise

Nature of Merchandise1 Frequency of purchase1. Frequency of purchase

2. High purchase frequency=lower replacement price

3. Low purchase frequency = higher replacement price

4. “Deliberation” merchandise

DefinitionG M i R t I t tGross Margin Return on Investment –A measurement of the relationship between inventory turnover and gross margin dollarsinventory turnover and gross margin dollars. It simply says that for each dollar tied up in inventory at cost x number of dollars that yhave been earned in gross margin = Gross Margin Return on Investment

Formula

Annualized Gross Margin A I t t C tGMROI = Average Inventory at Cost

Earn ‘n Turn Calculation

Example #1$500GM = $2.00 GMROI$250 ACI

$2.00 GMROI

= $5.00 GMROIExample #2

$500GM $5.00 GMROI$100 ACI

Warren Buffet

What is a Good GMROI?

Fast Selling – Low Marging g

• Sell 156 units a yearSell 156 units a year• Cost is $5 – Retail is $7

K 6 h d t ll ti• Keep 6 on hand at all times• Investment cost is $30 ($5 x 6 units)• 156 unit sales at $2 GM = $312 GM• $312 / $30$ $• $10.40 GMROI

Slow Selling – High Marging g g

• Sell 2 units a yearSell 2 units a year• Cost is $325 – Retail is $999

K 2 h d t ll ti• Keep 2 on hand at all times• Investment cost is $650 ($325 x 2 )• 2 unit sales with a GM of $674 = $1348• $1348 / $650 = $ $• $2.07 GMROI

Item Comparison

Item AFast Selling – Low Margin

Item BSlow Selling – High Margin

• GMROI – 28.6% • GMROI – 67.5%• Not so profitable • Highly profitable

GMROI & inventory turnover are the most importantare the most important measurements for vendor

f t t il!performance at retail!

Vendor Comparison

Vendor A Vendor B

• Sales – $500k • Sales - $500k• Gross $ - $240 (48%) • Gross $ - $220 (44%)• Turns – 2 0 • Turns 4 0Turns 2.0 Turns 4.0

Let’s Compare

GM$ AVG Cost $ ROIVendor A $240k $130k $1.84Vendor B $220k $57 5k $3 82Vendor B $220k $57.5k $3.82

Three Keys to Retail Success

Three Keys to Retail Successy

I t GRInventory Turn

Gross Margin

Revenue GrowthTurn MarginGrowth

Three Keys to Retail Successy

I t GRInventory Turn

Gross Margin

Revenue GrowthTurn MarginGrowth

Three Keys to Retail Successy

I t GRInventory Turn

Gross Margin

Revenue GrowthTurn MarginGrowth

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 Discounting Strategies The Eight Truths of• Shoulder-Season Discounting Strategies – The Eight Truths of Markdowns

• The Mysteries Behind Initial Mark-up – Pricing Strategies to Improve Your Bottom LineYour Bottom Line

• The True Measure of Retail – GMROI – and What it Takes to Grow It

Thank You

outdoorindustry.org/OU

Thank You.

Paul EricksonRMSA Retail SolutionsRMSA Retail Solutionswww.rmsa.comperickson@rmsa comperickson@rmsa.com