Make no mistake about it, the basics are still essential for a retail business to be successful. Location, product selection, pricing, creative displays and effectively dealing with customers all remain critical aspects of a successful retail operation. Once you figure out those pieces of the retail puzzle, then the numbers rule the game.
Think of your store as a compilation of numbers. Since there are so many, the trick is to determine which ones are really critical. Some numbers are absolutely needed to run your business, while other numbers are merely useful.
Many retail associations can provide a whole range of numbers to their members on store performance for that particular retail segment. Those numbers can be useful in helping you gauge your store’s performance, but they are not your numbers. The analogy that I will use is the health and fitness numbers for a particular age group. I like to see how my numbers compare to my age group, but the only numbers that really count when determining my health are my own. Let’s examine some of these retail numbers and see how they can be helpful.
¥ Sales – Comparing sales for this week or month vs. sales last year for the same period provides a good snapshot of how your sales are tending.
¥ Inventory Turn – Inventory turn is the engine that drives retail. There is a direct relationship between inventory turn, profit margin and cash flow. A well-tuned inventory with optimum turnover reduces the need for discounting, helps maintain your margin and most importantly, increases cash flow. This figure should be calculated monthly, by department, if possible.
The calculation is simple. Using the Cost Method, divide your month-end value of inventory at cost by the cost of goods sold. To use the Retail Method, divide your sales by the retail value of your inventory. Again, your goal is to establish the baseline for your store…