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Presentation

Presenter
Matt Parmaks
Senior Consultant
DMSRetail
Agenda

¾ Profitability Measurements
¾ Key Performance Indicators
¾ Commonly Used Formulas
¾ Sell Thru Scenarios
¾ Balanced Scorecards
¾ Operating Statement
¾ Q&A

## Profit = Sales - Expenses

Gross Margin (GM)
Gross Margin (GM) \$ = Selling \$ - Cost \$
Or
Gross Margin (GM) % = (Selling Price – Cost) x 100 / Selling Price

Example:
Selling Price of an Item: \$60.00
Cost of an Item : \$40.00
Then
GM% = (60 – 40) x100 / 60 = 33.33%
Typical Gross Margin Values
¾ Women’s Shoes: 44.2%
¾ Men’s Shoes: 44.6%
¾ Women’s Sportswear: 47.3%
¾ All Women’s Apparel: 43.6%
¾ All Men’s Apparel: 42.3
¾ Cosmetics & Drug: 38.6%
¾ Luggage: 48.1%
¾ Sporting Goods: 32.2%
¾ Furniture: 43.1%
¾ Electronics: 20.8%
Markup

## Markup = (Selling Price – Cost) / Cost

Or
Markup % = (Selling Price – Cost) x 100 / Cost

## Markup % = (60 – 40) x 100 / 40 = 50%

Weeks of Stock
Weeks of Stock : Value of Inventory (at Retail) / Average Weekly Sales

Example:

## Inventory level: \$8,000.00

Total sales of product for the past 6 weeks is: \$12,000.00
Average weekly sales = 12,000 / 6 = of \$2,000.00

## Weeks Stock = \$8,000.00 / \$2,000.00 = 4

This means that if you did not replenish your inventory and sales continued
at the same pace, you would deplete your inventory of that product to zero
within 4 weeks.
Inventory Turns
Usually expressed in annualized terms

Example:

## Annual Sales: \$12,000,000

Average Inventory throughout the year: \$3,000,000

## Inventory Turns = 12,000,000 / 3,000,000 = 4

Typical Inventory Turn Values
¾ Women’s Shoes: 4.1
¾ Men’s Shoes: 2.5
¾ Women’s Sportswear: 6.0
¾ All Women’s Apparel: 7.1
¾ All Men’s Apparel: 4.4
¾ Cosmetics & Drug: 3.9
¾ Luggage: 7.3
¾ Sporting Goods: 3.7
¾ Furniture: 3.3
¾ Electronics: 3.5
Gross Margin Return on Inventory
Investment (GMROII)

Example:

## Still using the same numbers from Gross Margin calculation,

assume that the store's net sales over a period of 12 months
is 24M and during this time it carries an average inventory of
4M. Then:

## GMROII % = 33.33 x (24 / 4) = 199.98%

Other Gross Margin Return on
Investment Calculations

## ¾ GMROF (Gross Margin Return on Sq.Ft)

GMROF = GM% x (Sales* / Sq.Ft.)

## ¾ GMROL (Gross Margin Return on Payroll)

GMROL = GM% x (Sales* / Labor Costs)

## * Sales amounts correspond to particular space or labor force in equation.

Key Performance Indicators
¾ Sales compared to last year (or any other
period):
Actual sales \$ for a given period / actual sales \$ for the period
you want to compare to

## ¾ Sales compared to budget-target:

Actual sales \$ / budget-target sales \$

## ¾ Sales per Square Foot:

Actual sales \$ for a given period (usually a month or a year) /
the total floor area (in sq.ft.) of the store.

There are variants of this indicator in terms of sales per square foot of merchandisable
area of choice (like walls and display units.)
Key Performance Indicators (Cont’d)

## ¾ Sales per Hour (for store or associate) – selling hours

only:
Actual sales \$ for the store / # of selling* hours during the
same period
*selling hours are used here rather than total labor hours

## ¾ Sales per Hour (for store or associate) – total labor

hours:
Actual sales \$ for the store / # of labor hours used during
the same period

## ¾ Average Sale per Customer/Transaction:

Total sales \$ / # of customers or transactions
Key Performance Indicators (Cont’d)

## ¾ Units per Customer/Transaction:

Total number of units sold / # of customers or
transactions

¾ Conversion rate:
# of transactions / # of customers who entered the
store

¾ Wage Cost:
Actual wage \$ paid / by actual sales \$ achieved
Key Performance Indicators (Cont’d)

## ¾ Average Wait Time at Cash

¾ Professionalism of Sales Associates
¾ Critical Error Rate
¾ Customer Satisfaction Level
¾ Customer Complaints
¾ Self Service Ratio
¾ Store Expenses/Sales Ratio
¾ Shrinkage/Sales Ratio

## ¾ Inventory purchase budget based on sales

plan (Target)
¾ Usually done at the category level, if
necessary, you can drill down to sub-
levels even down to SKU level
OTB Formula

## ¾ Desired End of Month (EOM) inventory

¾ Plus sales and markdowns
¾ Minus Beginning of the Month (BOM)
inventory and on order and receipts
Desired EOM 108,000 (Aug BOM)

## = Inv. Required 142,000

– BOM Inventory 72,000 (Jul BOM)

## = Open To Rec. 70,000

– On Order 40,000 (Jul On Order)

Sell Thru

## ¾ Velocity with which inventory is being sold

¾ Leading indicator for tracking inventory
performance
¾ Useful for predicting outcomes
Example of Sell Thru Scenario

## A Typical Mark Down / Sell Thru Cycle

For a Promotional Product
Sell Thru Scenario for the Previous
Cycle
To Obtain Different Scenarios, Try Changing MD Amount

Mark-Down Full Sell Margin Cost Units Units Sell-Thru Total Sales Total
Timeline Price Price % Left Sold % \$ Margin \$

Days 1-60 59.99 59.99 50.0 29.99 600 330 55 19,796.80 9,900.00

Days 61-90 59.99 41.99 28.5 29.99 270 108 40 4,534.92 1,296.00

## Days 91-110 59.99 23.99 -20.0 29.99 162 48 30 1,151.52 -288.00

Days 110+ 59.99 5.99 -80.0 29.99 114 114 100 682.86 -2,736.0

## 31.23 17,994 600 26,166.1 8,172.00

Balanced Score Cards

For
Retail Management
View of the Store

## ¾ The Financial Perspective

¾ The Customer Perspective
¾ The Learning and Growth Perspective
Why Use Balanced Scorecards

## ¾ To translate strategy into action

¾ Communicate strategy to staff
¾ Measure and report on KPI’s
¾ Monitor progress
How to Build Balanced Scorecards

## ¾ Create goals and objectives

¾ Describe metrics around goals and
objectives
¾ Assign target values
¾ Assign weights to each goal and objective
¾ Report the outcome
ACME Retail Company Inc.

Strategy

## Objectives Measures Targets Initiatives

Increase Gross
Financial Increase in \$ Profit 45% Decrease Markdowns
Margin

Reduce Customer
Customer # of Complaints Decrease by 20% Add More Value
Complaints

## Internal Business Performance and Increase Retention

Better Hiring Develop a Profile
Processes Retention by 6 Months

## Conduct Customer Acquire a Training

Learning & Growth # of Complaints Decrease by 50%
Service Training Program
Example

## ¾ Customer Related Goals of Your Store:

– Fast checkout
– Appropriate attention given to customer
– Sell new arrivals to existing customers
– Build loyalty
Description of Goals

Fast Checkout:

## We want to make sure we are not wasting

our customers time by prolonged checkout
process.
Description of Goals

## It means each and every customer is helped

and sold to, making sure that customers
are looked after and maximizing our
selling efficiency.
Description of Goals

## This will keep customer experience fresh

and also shows that salesforce is
Description of Goals

Loyalty:

## We want to make sure we have more repeat

customers, and we want to reward our
loyal customers.
Metrics for the Example

## ¾ Fast Checkout: Measure the average

time it takes to process a customer at the
cash.
¾ Attention: Measure units per sale and
average \$ per sale.
¾ New Arrivals: Measure the % of total
sales in new arrivals.
¾ Build Loyalty: Measure % of customers
Target Values

## ¾ Fast Checkout: 2 minutes.

¾ Attention: UPT: 2, ASPC: \$75.
¾ New Arrivals: 40% of sales should be
new merchandise.
¾ Loyalty: 80% of customers should have
our loyalty cards.

¾ Fast Checkout: 1
¾ Attention: 4
¾ New Arrivals: 2
¾ Loyalty: 3
Mid – Year Performance
YTD Sales YTD Sales YTD Stock
EPS
Growth Growth Price TTM PE
Growth
Total Comp Change

Ann Taylor
2.4% (4.7%) (13.2%) 2.5% 18.5x
(NYSE: ANN)

Gap
1.0% (4.0%) (21.5%) (3.2%) 21.5x
(NYSE: GPS)

Limited
11.0% 3.0% (48.0%) (1.2%) 17.6x
(NYSE: LTD)

Abercrombie &
Fitch 15.0% (3.0%) 4.8% (6.5%) 16.1x
(NYSE: ANF)

Aeropostale
11.6% 1.9% 80.0% 18.6% 20.2x
(NYSE: ARO)
End
Thank You