According to the “NSGA Cost of Doing Business Survey,” published by the National Sporting Goods Association (NSGA), retailers with four or more stores showed greater profitability in certain areas between 2009-2010. Retailers with only one store didn’t fare so well.
Inventory productivity can be measured by tracking inventory turnover, defined as cost of goods sold divided by either ending or average inventory. According to the NSGA report, retailers with four or more stores saw average inventory turns increase to 2.6 in 2009-2010 from 2.3 turns in 2007-2008. Retailers with one store, however, saw a decrease to 2.1 turns from 2.2 turns in the same two year period.
Drilling down into various product categories, retailers with four or more stores averaged 2.6 inventory turns for clothing, up from 1.7 turns two years ago. The same group of retailers showed an increase to 2.1 inventory turns for equipment, up from 1.9 turns two years ago. Retailers with one store, however, saw a decline from 3.0 inventory turns in clothing to 2.5 and a decline from 2.6 turns in equipment to 2.1 over the two year period.
A good measure of inventory profitability is gross margin return on inventory (GMROI). To determine your store's GMROI you essentially divide your gross margin by your inventory. GMROI helps to indicate whether an adequate gross margin is being earned compared to the investment in inventory required to generate those gross margin dollars. According to the NSGA report, the GMROI for four or more stores increased to $1.85 from $1.63 two years ago. Those with one store still showed an increase, fortunately, but it is much smaller-- $1.51 compared to $1.41 two years ago.
Want to quickly calculate your own store’s GMROI? Nothing could be easier if you use the SNEWS® Retail Merchandising Calculator found online and available to all SNEWS subscribers. Just click here and start plugging in your numbers. You can calculate gross margin, mark-up, retail selling price, target product cost, GMROI, stock-to-sales ratio, and turn.
If you want to learn more about how to calculate GMROI and what it means to your store and its profits, then you’ll enjoy reading our Retail College training article “SNEWS® Retail Merchandising Training 101: GMROI, sell-through, stock-to-sales ratios and other arcanery”.
The complete NSGA Cost of Doing Business Survey, which includes five measures of profitability, three measures of financial management and 14 measures of productivity, is available for download by NSGA members as a member benefit.