The largest investment a store makes isn’t staffing, branding, or marketing. It’s the inventory.
Make your inventory investment work for you
Do you know which products Are helping or hurting your business?
We know you’re short on time, so we will analyze your data and focus your attention on the most meaningful areas of your business. Numbers can be intimidating, especially when you’ve got a million other things needing your attention. We’ll serve up the financial health of your business on a platter every month and give you action items to drive sales and improve cash flow.
Do you know how to take advantage of what’s working and mitigate what’s not?
Everything we do is quantifiably measured. For every action we recommend, we will be able to provide you with a report card on how well our recommendation worked. We can identify what you’re doing well, and what you’re not and provide an actionable “to-do” list every month to either take advantage of your successes or mitigate your weaknesses.
We dive deep into the numbers so you don’t have to
Competitive Pressures
The industry is becoming more competitive and as a store owner you are likely experiencing a tightening in cash flow. Now is the time to start harnessing the power of your data driven business decisions. Our expertise is diving deep into the numbers so you don’t have to. Are you circling back to analyze how your inventory investment performed or simply repeating what you’ve always done
Unproductive Inventory
Most store owners are sitting on at least 50% unproductive inventory. That’s an investment that’s being wasted, or money that could be spent buying into merchandise with a higher rate of sale and margin. We will identify items that aren’t making you money and provide an action plan to get out of that inventory as profitably as possible.
Customized Buy Plan
We will provide you with a customized buy plan, by category, by month, so you aren’t overbuying and wasting your money on product that isn’t making you money, or leaving sales on the table because you haven’t bought deeply enough into what is making you money.
Promotions
It seems as though many stores are relying on heavy promotional activity to drive sales, stay relevant and be competitive. Do you know if you are generating enough sales to make up for the margin hit by promoting product? Are you even promoting the right product? How are you differentiating your promotions so they don’t get lost in a sea of sameness?
Retail Basics
Open-to-Buy (OTB)
A financial budget for retail merchandise that provides guidance on how much to buy, and gives benchmarks for evaluating progress and adjusting future receipt plans.
OTB = Planned Sales
+ Planned Markdowns
+ Planned end of month inventory
– Planned Beginning of next month inventory
= Open the Buy (@ retail)
Initial Markup (IMU)
The difference between the price you pay your vendor and what you charge your customers. when deciding on the IMU, there are 3 components to consider: operating expenses, anticipated markdowns and desired profits
IMU % = Original Retail – Cost / Original Retail = $125 – $55 / $125 = 56.0%
Original Retail = $125
Cost = $55
Stock-to-Sales Ratio (STS)
Represents the proportion of inventory on hand at the beginning of the month that will support the planned sales in that same month. The key here is this is a monthly metric.
STS = Beginning of Month Inventory (Stock) / Projected Sales for the Month
Gross Margin Return on Investment (GMROI)
Is simply a measure of how profitable your inventory is – it analyses your ability to turn inventory into cash, above what it cost to purchase that inventory.
GMROI = Gross Margin $ / Avg. Inventory @ cost *
Average inventory is the product cost minus discounts, plus freight and taxes. The average is found by adding the beginning cost inventory for each month plus the ending inventory for the last month in the period. If calculating for a season, divide by 7. If calculating for a year, divide by 13.
Cost of Goods Sold (COGS)
The price paid for inventory, plus any additional costs necessary to get the inventory ready to sell, including shipping and handling.
COGS = Beginning Inventory + Purchases – Ending Inventory
Markdowns
Maintenance markdowns – taken any month on goods older than 60 days. There will always be certain styles that just don’t sell. Take a deeper markdown the first time to get the goods out the door and free up cash to buy into new, fresh merchandise. Waiting will not improve the situation. If the customer didn’t like the item at full price, and didn’t like it at 40% off, then it’s highly unlikely the customer will like the item 90 days later.
Regular markdowns – a very important part of any retail business. All businesses are different but the general rule of thumb should be to achieve a 90% sell thru on a style. Why not 100% sell thru? If you have sold through your merchandise at 100% you’ve left MONEY on the table. At 90% you are only taking 10% of your merchandise at a discount and you’ve ensured you haven’t missed any sales.
Safety Stock (SS)
Provides protection against running out of stock during the time it takes to replenish. Beneficial when actual demand exceeds projected demand.
Gross Margin (GM%)
The portion of each dollar a retailer retains as gross profit. Example: if a retailers GM% is 45% then $0.45 of each dollar generated would be retained to pay other expenses (including your salary)
Gross Margin % = Revenue – Cost of Goods Sold / Revenue = $100 – $55 / $100 = 45.0%
Inventory Turnover (Turn)
Refers to the number of times during the year inventory has been replaced
Inventory Turner = Cost of Goods Sold / Average Inventory
Average inventory is the product cost minus discounts, plus freight and taxes. The average is found by adding the beginning cost inventory for each month plus the ending inventory for the last month in the period. If calculating for a season, divide by 7. If calculating for a year, divide by 13.
Maintained Markup (MMU)
The Gross Profit generated on merchandise sold. The MMU reveals the impact of markdowns (reductions) on the IMU. Minimize COGS to increase MMU
MMU$ = (Original Retail – Reductions *) – COGS
* Reductions = Markdowns + Employee
Discounts + Customer Discounts + Stock Shortage
MMU% = MMU$ / Net Sales
Markdown Rate vs Discount Rate
This is often confusing for store owners. There is a difference between the markdown rate and discount rate:
The Markdown Rate is defined as the amount of inventory that is being depreciated because it’s been marked down, or not sold at full price. The Markdown Rate calculation is: Markdowns $ / Net Sales $
The Discount Rate represents the reduction in selling price at the time of sale. The discount rate calculation is Markdown $ / Original Retail $
Example: The Original Retail of an item is $250. The item was sold at $100.
Markdown Rate = $150/$100 = 150%, the percentage of inventory that was taken as a markdown
Discount Rate = $150/$250 = 60% Off is the discount the customer received at the time of purchse.
Breakeven Point
Breakeven is the point where the contribution dollars exactly equal the fixed expenses. No profit has been made, but losses have not been incurred. The breakeven number will identify how much money needs to be made before the business can be profitable.
Alyson MacMullan
Merchandise Planning and Analytics
Jim Mathers
Business Development and Operations
Jim is an experienced business professional with over 25 years of demonstrated success in a wide variety of areas including sales, sales management, operations management, marketing and business strategy. Additionally, Jim has proven successful experience in a variety of consulting engagements in healthcare, retail and other business to business environments.
Jim is passionate about helping to build successful businesses by applying his vast experience in sales, operations, customer service and finance. Jim holds a BA in Science from The University of Pennsylvania and an MBA with a focus in International Business and Strategic Finance from Pepperdine University. Jim has also earned a variety of additional certifications in Sales and Sales Management.
I couldn’t be happier with Peak Retail and Alyson. Alyson always takes the time to explain the things I am looking at in an easy to understand manner, especially in the beginning when all of the data I was looking at could be quite overwhelming. What I appreciate the most is how simply she presents the data I need to look at, compiling the most important information and making it the first thing I see so I can act on it if necessary. She has also encouraged me to step outside of my comfort zone with buying practices and promotions that I would have never attempted before working with Peak. To be honest, I was shocked at the things I didn’t know about buying, inventory control and retail in general before starting with Peak, even with almost a decade of retail experience. Lastly I appreciate the honesty I receive from Alyson. She gives praise when it’s called for but is not afraid to tell me her opinion or give constructive feedback. I have become a better buyer working with Peak and I am truly thankful for Alyson and the tools Peak has provided for me to make me better.
Say Hi
303.718.4227 Denver, CO | hello@peakretailgroup.com
Copyright Peak Retail Group 2018