In the fashion industry the main asset or resource in your business is stock. It is where you spend a large amount of your money. It is what attracts customers to your store, and it is your primary income earner. Whether it is buying, merchandising, advertising or selling, the critical success factor in your business is how well you utilise this key resource.
How well do you manage it? Are you overstocked? Do you struggle with cashflow to pay for it? How much of it is out-of-date? What stock items are making the money and which are costing you?
I have already highlighted a number of important measures (stockturn, gross margin, gross margin return on inventory - GMROI, stock productivity) that enable you to assess how well you manage stock, and have encouraged you to monitor these on a regular basis (at least monthly).
So what? What can I do practically do to improve these indicators and the profitability of my business? How can I lift my stockturn and gross margin to show an increased gross margin return on inventory (GMROI)? I suggest the following two actions/tools for your consideration.
1.Determine these measures not just on your total stock but also on your departments and specific stock categories.
You could even do it by supplier if that is appropriate for your business. On a page list each department, category and/or supplier, then against each show the sales, the stock level, the gross profit and the GMROI. Immediately it will indicate to you the stock areas that are generating the most sales and relating that to your stock level and gross margin.
The most compelling indicator is GMROI, which will show you which department, category and/or supplier is generating the most gross profit dollars for every dollar of stock. Gross profit percentage is important in retail but I would suggest that gross profit dollars is the better indicator (you bank dollars not percentages) and relating it to your stock level with GMROI, is the ‘piece de resistance’ of retail measures.
This is where you need to discuss the implications with your staff. Ask them what they think. What does it mean in terms of merchandising, discounting, purchasing, store layout? It is the measure that will shine the brightest lights on the areas requiring management attention, both good and bad. When you marry this closer departmental attention with the following retail matrix you will be in a great position to make good informed management decisions.
2.Utilise the retail matrix to analyse your stock by sales, gross margin and stockturn.
The retail matrix is a revision I have made of the reasonably well used Boston Matrix (which focuses on market share and market growth, but these are often too esoteric for most businesses) to highlight areas for practical management attention. It is extremely useful because it is easily comprehended by staff and a great way to help them analyse your stock. I encourage you to utilise it in two ways. One, which I call the Art of Retail Matrix, focuses on sales and gross margin, while the second, which I call the Science of Retail Matrix, focuses on stockturn and gross margin. The lessons from both are the same with the major difference being that with the first there is a fair degree of subjective judgment (hence art). Not so with the second, which is very objective and matter of fact (hence science).
Brett Stevenson is Director of Excellere , a company that specialises in workshops covering financial management, strategic planning, business ethics and personal development for business. www.excellere.com.au