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12/29/2011

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Presentation
Presenter Matt Parmaks Senior Consultant DMSRetail

Agenda
Profitability Measurements Key Performance Indicators Commonly Used Formulas Open to Buy Sell Thru Scenarios Balanced Scorecards Operating Statement Q&A

Profit = Sales - Expenses

00 Cost of an Item : \$40.00 Then GM% = (60 – 40) x100 / 60 = 33.Cost \$ Or Gross Margin (GM) % = (Selling Price – Cost) x 100 / Selling Price Example: Selling Price of an Item: \$60.33% .Gross Margin (GM) Gross Margin (GM) \$ = Selling \$ .

6% 48.1% 20.3% 43.6% 42.3 38.Typical Gross Margin Values Women’s Shoes: Men’s Shoes: Women’s Sportswear: All Women’s Apparel: All Men’s Apparel: Cosmetics & Drug: Luggage: Sporting Goods: Furniture: Electronics: 44.6% 47.1% 32.8% .2% 43.2% 44.

Markup Markup = (Selling Price – Cost) / Cost Or Markup % = (Selling Price – Cost) x 100 / Cost Using the Same Example: Markup % = (60 – 40) x 100 / 40 = 50% .

000. .00 Weeks Stock = \$8.000.000.000 / 6 = of \$2.00 / \$2.00 = 4 This means that if you did not replenish your inventory and sales continued at the same pace.000.Weeks of Stock Weeks of Stock : Value of Inventory (at Retail) / Average Weekly Sales Example: Inventory level: \$8. you would deplete your inventory of that product to zero within 4 weeks.00 Average weekly sales = 12.000.00 Total sales of product for the past 6 weeks is: \$12.

000.000 / 3.000 Average Inventory throughout the year: \$3.Inventory Turns Usually expressed in annualized terms Inventory Turns = Sales / Average Inventory Example: Annual Sales: \$12.000.000.000 Inventory Turns = 12.000 = 4 .000.

4 3.5 6.3 3.3 3.1 4.9 7.5 .Typical Inventory Turn Values Women’s Shoes: Men’s Shoes: Women’s Sportswear: All Women’s Apparel: All Men’s Apparel: Cosmetics & Drug: Luggage: Sporting Goods: Furniture: Electronics: 4.1 2.0 7.7 3.

98% . 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. Inventory) Example: Still using the same numbers from Gross Margin calculation.Gross Margin Return on Inventory Investment (GMROII) GMROII = GM% x (Sales / Avg. Then: GMROII % = 33.33 x (24 / 4) = 199.

Ft.) GMROL (Gross Margin Return on Payroll) GMROL = GM% x (Sales* / Labor Costs) * Sales amounts correspond to particular space or labor force in equation.Ft) GMROF = GM% x (Sales* / Sq.Other Gross Margin Return on Investment Calculations GMROF (Gross Margin Return on Sq. .

ft.) .Key Performance Indicators Actual sales \$ for a given period / actual sales \$ for the period you want to compare to Sales compared to last year (or any other period): Sales compared to budget-target: Sales per Square Foot: Actual sales \$ / budget-target sales \$ Actual sales \$ for a given period (usually a month or a year) / the total floor area (in sq. There are variants of this indicator in terms of sales per square foot of merchandisable area of choice (like walls and display units.) of the store.

Key Performance Indicators (Cont’d) only: Sales per Hour (for store or associate) – selling hours *selling hours are used here rather than total labor hours Actual sales \$ for the store / # of selling* hours during the same period Actual sales \$ for the store / # of labor hours used during the same period hours: Sales per Hour (for store or associate) – total labor Average Sale per Customer/Transaction: Total sales \$ / # of customers or transactions .

Key Performance Indicators (Cont’d) Units per Customer/Transaction: Total number of units sold / # of customers or transactions Conversion rate: # of transactions / # of customers who entered the store Wage Cost: Actual wage \$ paid / by actual sales \$ achieved .

Key Performance Indicators (Cont’d) Average Wait Time at Cash Professionalism of Sales Associates Critical Error Rate Customer Satisfaction Level Customer Complaints Self Service Ratio Store Expenses/Sales Ratio Shrinkage/Sales Ratio .

if necessary.Open to Buy (OTB) Inventory purchase budget based on sales plan (Target) Usually done at the category level. you can drill down to sublevels even down to SKU level .

OTB Formula Desired End of Month (EOM) inventory Plus sales and markdowns Minus Beginning of the Month (BOM) inventory and on order and receipts Equals Open To Buy .

000 30.000 32.000 142.000 70. – On Order = Open To Buy 108.000 72. Required – BOM Inventory = Open To Rec.Open To Buy: July Desired EOM + Sales + Mark Downs = Inv.000 40.000 2.000 (Aug BOM) (Jul Plan) (Jul Plan) (Jul BOM) (Jul On Order) .

Sell Thru Velocity with which inventory is being sold Leading indicator for tracking inventory performance Useful for predicting outcomes .

Example of Sell Thru Scenario A Typical Mark Down / Sell Thru Cycle For a Promotional Product .

99 59.99 270 108 40 4.23 17.Sell Thru Scenario for the Previous Cycle To Obtain Different Scenarios.99 23.99 600 330 55 19.99 28.86 -2. Try Changing MD Amount Mark-Down Timeline Full Price Sell Price Margin % Cost Units Left Units Sold Sell-Thru % Total Sales \$ Total Margin \$ Days 1-60 59.99 41.736.534.796.151.172.00 Days 91-110 59.1 8.99 114 114 100 682.5 29.00 Days 110+ 59.0 29.994 600 26.296.0 29.99 50.99 162 48 30 1.52 -288.00 Days 61-90 59.99 -20.92 1.99 5.900.99 -80.80 9.00 .0 29.0 31.166.

Balanced Score Cards For Retail Management .

View of the Store The The The The Financial Perspective Customer Perspective Business Process Perspective Learning and Growth Perspective .

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Why Use Balanced Scorecards To translate strategy into action Communicate strategy to staff Measure and report on KPI’s Monitor progress .

How to Build Balanced Scorecards Create goals and objectives Describe metrics around goals and objectives Assign target values Assign weights to each goal and objective Report the outcome .

Strategy Objectives Measures Targets Initiatives Financial Increase Gross Margin Increase in \$ Profit 45% Decrease Markdowns Customer Reduce Customer Complaints # of Complaints Decrease by 20% Add More Value Internal Business Processes Better Hiring Performance and Retention Increase Retention by 6 Months Develop a Profile Learning & Growth Conduct Customer Service Training # of Complaints Decrease by 50% Acquire a Training Program .ACME Retail Company Inc.

Example 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 Appropriate attention to the Customer: 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 Selling higher % of new arrivals: This will keep customer experience fresh and also shows that salesforce is knowledgeable about new products.

. and we want to reward our loyal customers.Description of Goals Loyalty: We want to make sure we have more repeat customers.

. Attention: Measure units per sale and average \$ per sale. Build Loyalty: Measure % of customers that hold your loyalty card.Metrics for the Example Fast Checkout: Measure the average time it takes to process a customer at the cash. New Arrivals: Measure the % of total sales in new arrivals.

. New Arrivals: 40% of sales should be new merchandise.Target Values Fast Checkout: 2 minutes. ASPC: \$75. Loyalty: 80% of customers should have our loyalty cards. Attention: UPT: 2.

Weighing Your Goals Fast Checkout: 1 Attention: 4 New Arrivals: 2 Loyalty: 3 .

6% 20.0% (48.0% (3.0%) (1.4% (4.7%) (13.Mid – Year Performance YTD Sales Growth Total YTD Sales Growth Comp EPS Growth YTD Stock Price Change TTM PE Ann Taylor (NYSE: ANN) Gap (NYSE: GPS) Limited (NYSE: LTD) Abercrombie & Fitch (NYSE: ANF) Aeropostale (NYSE: ARO) 2.2%) 21.5%) 16.8% (6.2x .0% 3.5x 1.9% 80.5x 11.2%) 2.6% 1.0% (4.0%) (21.0% 18.5%) (3.0%) 4.2%) 17.6x 15.5% 18.1x 11.

End Thank You .

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