PERSPECTIVES

The Most Dynamic Management Tool for Retailers

What is the "return on investment" of a retailer's largest investment? The GMROI calculation is the tool for the job!

GMROI – Gross Margin Return on Inventory Investment – indicates how much Gross Margin you get back for each dollar “invested” in inventory over a year. 

No other formula, no other calculation, simultaneously impacts both Gross Margin and Cash Flow. No wonder we consider GMROI as the #1 measure of inventory productivity.

And since inventory represents between 65%-80% of a retailer's total assets, it deserves a lot of management attention.

Let's start with a little "window shopping." Check below for the GMROI Benchmarks for just a few retail segments. 

• Yes, there's a lot of variation. In 2023, for instance, results for just these 6 segments range from $1.90 to $7.50. You'll likely see similar variations between departments in your stores, which is one of the advantages of GMROI. Which ones are most productive?
• Now look at each of these sets of Benchmarks charts individually, and their GMROI over the last 5 years. A few ups and downs, eh? Just not the same ups and downs for everybody. Note: GMROI's that are going up are sure preferable!

Is This Why Many Retailers Fail?

Maybe you've also noticed it. The recent articles about how retailers now have their inventories "more in line" after the glut of excess inventory caused by "supply chain disruption."

Okay. That's good news.

But, what jumps out at us is the frequent reference to "just-in-time" inventory management.

• Really? Tell us, What is the formula for calculating "just-in-time"? 
• What time is "just-in-time"? Is it 2 turns on the inventory? Four turns? Six turns? Twelve turns? Or what?!?

Look, if you can't measure it, you can't manage it. And, if you can't manage something, by definition (and experience!) it is out of control.

• It’s in their blood. It’s what makes them and their stores successful. That drive. That perseverance. That goal-driven focus. 

Undoubtedly you'll agree with this. We read and hear a lot in the business press, but we treat 100% of it rather skeptically. 

And so it is with articles and commentary about this coming Holiday Season, specifically about retailers' inventory and margins.

Nevertheless, there is considerable good news being trumpeted. Most recently, this feature article in the Wall Street Journal: "Retailers Hone  Inventory for Holidays" *

"In-Person Shopping Keeps Getting Worse"

That was the headline in a recent business page editorial*. And the writer was able to cite chapter and verse of all-too-prevalent lousy shopping experiences for customers. 

• "More American stores are doing with fewer employees and many have locked items up to keep them from being pilfered."
   
• "The retail industry slashed head count in 2020 and has never returned to pre-pandemic staffing levels."
   
• Meanwhile, "store employees are spending more time fulfilling online orders, leaving them less time for helping [in-store] customers."
   
• Then this warning: "Head-count reductions will become even more tempting in the quarters ahead, as the economy dampens consumers' appetite for shopping."

As noted by a Wharton School professor, "retailers frequently reduce headcount because 'you immediately see the savings in payroll but you don't necessarily know what damage that does to the top line.'" Of course, the retailers that professor is referencing are the Big Guys who have to satisfy their investors every quarter.

As independent retailers, you have advantages that are unavailable to the Big Guys.

Guess what. Your shoppers would love to know you better!

We hear it over and over. "Good business citizenship" matters to shoppers. Especially for retailers, who are quasi-public figures in their communities. (AND in a goldfish bowl.)

Customers vote with their feet, their wallets, and their hearts, and increasingly choose those retailers who "do the right thing", whether it's how they source product, hire and pay employees, reduce environmental impacts, etc.

There are things that independent retailers do day in and day out, without perhaps even realizing how special they are! 

Most retailers we know are "aw shucks" type people. It's charming, but, especially in today's world, your leadership can be a competitive edge! So, why keep it a secret? 

Many of you are using social media to promote sales events, new product arrivals, etc. Why stop there?

Social media – and your website – is the perfect place to share examples of the values that drive your business. And face it; those values may be too scarce today. They need to be featured! 

Sure, It's Just Our Opinion

As we look out at the second half of 2023, we're actually quite optimistic for independent retailers worldwide. No, really!

The statistics haven't yet borne out what we are "seeing," but just wait a bit.

To begin our justification, let's look at the really Big Picture. Generally, the Covid pandemic has been wrestled down. Likewise, inflationary prices seem to no longer be a threat. The worrisome political scene has resumed its traditional state of boredom, and the major concern now is something we can't do much about: each day's weather.

So, looking at the Big Picture, we see the general population for the second half of the year to be quite serene, even optimistic. And that bodes very well for shoppers' confidence!

In today's financial climate, how in the world can independent retailers (that's the 92% that are not publicly traded) get financing? 

In most cases banks are not lending (even as they run ads proclaiming their "support for small businesses.") Landlords aren't more lenient, nor are many vendors. Even mothers-in-law are asking tougher questions! 

So, what should a retail owner do? Just give up on the idea of getting financing? Or, worse, accept the cash offers from vendors, payment processors, or POS providers who take their "payments" right off the top of your daily sales?

Well, it is maddening, but The ROI recommends an easy exercise that may be of great help.