Measure, Manage, Succeed: The Key to Retail Excellence

You Can’t Manage What You Don’t Measure

Jan/Feb 2016 SRT

In the game of golf everything is measured. The score is measured against par. This measurement is so vital to the game that players are actually provided a card by which to record the number of strokes taken in a round. Some golfers are obsessed with tracking other statistics of the game in hopes of discovering shortcomings in need of potential improvement. Areas sometimes analyzed include length of drives drives in the fairway greens in regulation and number of putts required to get the ball in the hole and the list goes on.

Runners log miles run. Weightlifters chart progress by keeping journals of amount of weight lifted and number of repetitions performed. Some of the more dedicated ones even track calories and monitor portions during the day in an effort to manage progress. The point of all this is that without benchmark information as a reference point you don’t know where you need to improve. How can you be expected to know what is good if you aren’t sure what is bad?

Retail Is Detail

In the retail business there are numerous areas that require measurement in order to achieve success. Sales volume is the obvious starting point. All retailers want to know how they did compared to last year last month last Saturday etc. Great care must be taken to make sure that the comparison is valid. For example if last year’s sales were driven with markdowns and this year’s volume for the same time period came in lower it is possible that the sales you had were more profitable than the preceding year. Other important considerations to keep in mind when measuring sales include the weather the timing of certain holidays from year to year and various promotions that may have occurred.

Merchandising Benchmark Numbers

All retailers have a pretty good idea of where they stand on sales for a given period. However there are several other merchandising benchmark numbers that require measuring lest they fail to get the management attention they deserve. This list includes but is not limited to:

• Operating expenses
• Markdowns
• Shrinkage
• Initial and maintained markups
• Merchandise-on-order
• Open-to-buy

Operating Expenses

Operating expenses for some retailers can account for as much as 43 cents out of every dollar sold. They should be planned out by line item and reviewed periodically. Rent payroll advertising even insurance and interest costs may be more controllable than you might think. Compare your expenses against those in your industry and make sure you are within an acceptable range.

Markdowns

I am often surprised to find retailers that do not know how many markdowns they have taken. It is impossible to manage something if you have no starting point. Track markdowns by vendor and classification at the very least. Remember that markdowns are expressed as a percentage of sales. Capturing markdown information by style and size may also prove beneficial in some instances. Most though not all computer POS systems do an adequate job of tracking markdown information.

Inventory Shrinkage

Inventory shrinkage is another area that some retailers don’t seem to pay much attention to. This comes right off the profit line. If the difference between your book and physical inventory is outside of industry norms start asking some questions and tighten things up.

Review Initial and Maintained Markups

Review initial and maintained markups on a regular basis. Initial markups need to be sufficient enough to cover markdowns operating expenses and to satisfy profit requirements. The web is a great resource to research just about anything. A random internet check of styles you carry will let you know if you are selling at competitive prices. Industry associations often publish typical ranges of maintained markup and gross margin figures with which to gauge your operation against.

Try This Simple Trick

How does the merchandise you have on order for the next season stack up against your projected sales? Here is a simple test that I use with my clients all the time:

• Take the on-hand retail inventory of a given classification.
• Add to that the merchandise on-order you have committed to for the upcoming season.
• Don’t forget to estimate for any size fill-ins or reorders that you think you might need.
• Subtract the estimated sales you expect and the amount of markdowns you feel might be reasonable.

Compare the ending number you get with your inventory plan. If you are not happy with what you come up with you have a few options: you can adjust orders promote earlier hope business is better than you planned pray or do nothing at all and suffer the consequences of having too much inventory at the end of the season.

Measuring analyzing and adjusting these and other quantifiable areas of your business will help you fine-tune the expectations you have of your staff as well as creating a winning strategy.

Ritchie Sayner

See Full Bio