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"Connect the dots" like a pro!
 

HOW TO USE THE ROI'S BENCHMARK NUMBERS LIKE A PRO


As you examine the trends in any retail segment, here are some pro tips for you.
  • An upward trend is usually a good sign - with one exception. That is the Debt-to-Worth ratio, where lower is financially stronger, as it indicates less debt.

    There really are no right or wrong ratios. However, examining the trends over time can provide early warnings of potential trouble spots.

    Connecting the dots of the cause-effect connections can be very revealing. 

Let's take a look at what we mean by comparing two segments: Women's Apparel and Men's Apparel stores.
(Go to each of those pages to see the Five Year Trend charts; we have recapped the numbers from 2019 on the table below.)
 

At first glance, just comparing one year's results, the Women's Apparel segment seems to be doing better: virtually all of their Key Ratios appear to be better than the Men's Stores segment.


But let's take a closer look, and pay particular attention to the trends.

With a Pre-Tax Profit of 0.3%, the Menswear stores are barely breaking even. Meanwhile, the Women's stores generated 1.4% Pre-Tax Profits in 2019. However, the trends show that both segments saw declines in profit from 2018.
 
Meanwhile, both segments saw increases in Gross Margin, and again, the Women's stores (increasing nearly 2 points to 48.3%) seemed to be outperforming the Menswear (increased just 0.6% to 47.8%.)

 

Now let's see what a closer look at all of the trends of each segment can reveal.

For instance, look at the Inventory Productivity section.

Are we starting to see what might be driving those Gross Margin increases? 

  • Inventory turns in Women's Apparel have been declining for the past 4 years, from 5.4 turns in 2016 to 3.3 turns in 2019! That means that the merchandise in women's stores, on average, is more than 3-1/2 months old.
     
  • And look at the GMROI for Women's Apparel; a steady downward trend.
     
  • The inventory productivity of these stores is deteriorating!

                                                             

Now look at the Debt-to-Worth ratio, where lower is better (indicates less debt.)

  • For Women's stores, the Debt-to-Worth ratio has jumped up dramatically to 3.0, nearly double its 2018 result.
     
  • That increased debt also means increased interest expense, which has an impact on profits (which declined, remember?)
                                                             
Meanwhile, what about the Men's Apparel segment?
  • Their turns improved. the best turnover rate in five years.
     
  • And their GMROI also went up to a five year high.
     
  • Sure enough, their Debt-to-Worth ratio went down.
     
  • These Menswear stores are getting financially stronger!  


                                                             

Now look at the Current Ratio for each segment, an important cash flow measure.

  • The Current Ratio for Menswear segment is trending up
     
  • And, you guessed it, trending down for the Women's Apparel segment. A cash crunch could be looming.


                                                             

So, two key points as you check out these Benchmark trend charts:

  1. Pay attention to the trends
     
  2. Be aware of the cause-effect relationships
                                                             
Also keep this in mind: a retail segment showing declining trends does NOT mean that every retailer in that segment is doomed! Nothing of the sort. These numbers are aggregates of all the stores; some are doing much better (and some are below these averages, too.)
 
Key Retail Benchmarks • Trend Charts • Free
 

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In seconds, it generates these 6 Key Ratios for Retailers:
  • Profit %
  • Gross Margin %
  • Inventory Turnover
  • G.M.R.O.I.
  • Current Ratio
  • Debt-to-Worth Ratio
Go here to see more about this unique and useful online calculator. 
 
Use the Retailer's KEY RATIOS Calculator
 
 

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