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Inventory Turnover – Three Steps to Purchasing Smarter, Turning More and Making More Money Paul Erickson, RMSA Paul Erickson Senior Vice President

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Inventory Turnover – Three Steps to Purchasing Smarter, Turning More and Making More Money Paul Erickson, RMSA Paul Erickson Senior Vice President Inventory Turnover – Three Steps to Purchasing Smarter, Turning More and Making More Money Paul Erickson, RMSA Paul Erickson Senior Vice President www.rmsa.com [email protected] inventory turnover • a key indictor of how well merchandise is performing at retail • does not appear on a retailer’sP&L s P&L • accounting does not factor in the element of time definition • the frequency that a store sells its average dollar inventory • a measure of the inventory efficiency and is expressed as a ratio apples to apples • retail inventories to retail sales • cost inventories to cost of goods sold the formulas annual retail sales averaggye inventory at retail -OR - annual cost of goods sold average inventory at cost alternative concepts turns (annual) sell-through (weekly or monthly) measure and track calculating turn example: turn goals goal/months 4 turns into sell or weeks in 12 months = through year = sell 33% goals through goal measure and track calculating turn example: turn goals goal/months 4 turns into sell or weeks in 12 months = through year = sell 33% goals through goal measure and track calculating turn example: turn goals goal/months 4 turns into sell or weeks in 12 months = through year = sell 33% goals through goal monthly Avggy. Monthly Annual Turn Sell -Thru 1.5 = 13% 2.0 = 17% 303.0 = 25% 4.0 = 33% 6.0 = 50% weekly Avggy. Monthly Annual Turn Sell -Thru 1.5 = 2.9% 2.0 = 3.8% 303.0 =57%= 5.7% 4.0 = 7.7% 6.0 = 11.5% turns = weeks supply 52 weeks / turn rate 1.5 turns52/1.5 34.6 weeks 2.0 turns 26.0 weeks 30turns3.0 turns 20. 8 weeks 4.0 turns 17.3 weeks 52 weeks 2.0 Turns = 26 Weeklk Supply 26 weeks to sell an item Jan 10th | Feb| Mar | Apr |May | Jun-July10th increase turns increases cash flow an improvement of only 1 week in annual sell-through increases flow by approximately 1% of annual sales 25 weeks to sell an item Jan 10th | Feb| Mar | Apr | May-Jun | July 3rd cheaper by the dozen another view steppps to improve cash flow negotiate sell at least sell it before longest half before you pay for it payment you have to terms pay possible steppps to improve cash flow negotiate sell at least sell it before longest half before you pay for it payment you have to terms pay possible` 60 dayypg terms & 3 turns accomplishes this goal Example 3 turns = 121. 6 days supp ly (365 / 3) Apppproximately half the items are sold by the time the invoice is due steppps to improve cash flow negotiate sell at least sell it before longest half before you pay for it payment you have to terms pay possible 90 dayypg terms & 4 turns accomplishes this goal Example 4. 0 turns = 91 days supp ly (365 / 4. 0) For all ppppractical purposes the entire inventory is sold by the time the invoice is due practice in action The $1, 000, 000 BOOTS The $1, 000, 000 BOOTS 50% Markup The $1, 000, 000 BOOTS $500,000 The $1, 000, 000 BOOTS Open Doors January 2nd $34,000 @ month operating expenses Boots sell on December 24 th as a last minute holiday gift Jan | Feb | Mar | Apr | May | June Jul ||g Aug | Sept | Oct | Nov | Dec End-of-Year Inco me State me nt Sales $1,000,000 Cost of goods sold $ 500,000 Gross profit $ 500,000 Less expenses (()$34K x 12 months) $ 408,000 Net profit $ 92,000 $500, 000 ODOpen Doors January 2nd Boots sell on December 24 th of Year 2 as a last minute holiday gift Jan | Feb | Mar | Apr | May | June Jul | Aug | Sept | Oct | Nov | Dec Jan | Feb | Mar | Apr | May | June Jul |Aug| Aug |Sept| Sept |Oct| Oct |Nov| Nov |Dec| Dec Year 2 End -of-Year Income State me nt Sales $1,000,000 Cost of goods sold $ 500,000 Gross profit $ 500,000 Less expenses (()$34K x 24 months) $ 816,000 Net loss $ (316,000) $500, 000 ODOpen Doors January 2nd BtBoots se llthll the last day of January! End ooeasf 2 Years Income State me nt Sales $ 800,000 Cost of goods sold $ 500,000 Gross profit $ 300,000 Less expenses (()$34K x 1 month) $ 34,000 Net profit $ 266,000 your call to action three things plan your sales & markdown slow use MIN/MAX inventory to selling and auto- achieve faster merchandise replenishment turns within planned systems month's supply window three things plan your sales & markdown slow use MIN/MAX inventory to selling and auto- achieve faster merchandise replenishment turns within planned systems month's supply window three things plan your sales & markdown slow use MIN/MAX inventory to selling and auto- achieve faster merchandise replenishment turns within planned systems month's supply window outdoorindustry.org/OU Shoulder-Season Discounting Strategies – The Eight Truths of Markdowns – January 31 The Mysteries Behind Initial Mark-up – Pricing Strategies to Improve Your Bottom Line – February 14 The True Measure of Retail – GMROI – and What it Takes to Grow It – February 28 Thank You. outdoorindustry.org/OU Paul Erickson RMSA Retail Solutions www.rmsa.com perickson@rmsa. com.
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