ETD: 875 Free Marketing resources; GMROI and Turn & Earn;
Retail conferences
E-Tailer's Digest
etd_post at gapent.com
Tue Apr 5 11:13:37 GMT 2005
E-Tailer's Digest --- Everything for the Retailer
Issue #0875 April 5, 2005
George Matyjewicz, Moderator mailto:georgem at gapent.com
Published by: GAP Enterprises, Ltd. http://www.etailersdigest.com
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CONTENTS
[1] Greetings
[2] Free Marketing resources
[3] GMROI and Turn & Earn
[4] Retail conferences
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[1] Greetings.
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Hi All:
We have some excellent material today. For retailers there are two
excellent and free resources - Gifts & Dec Magazine where you may be able
to get a free product announcement in their Product Wire which is e-mailed
to their subscribers. The second is Froogle, Google's answer to Yahoo
stores. Has anybody tried either of these?
List member Jerry Grooms asks whether an article on GMROI and Turn & Earn
is correct. What do you think? Does he have it right?
Quinn Halford, Editor In Chief and Matthew Kalash, Managing Editor of Gifts
& Dec Direct offer information on some upcoming conferences that should be
of interest to retailers/etailers.
Tell us about your business which will remain for posterity at
our "Members: Who Are You?" site. This is a courtesy to our members who
contribute to our forum, and not merely a way to advertise for
free. Anything to do with the retail world, i.e., supplier, retailer,
consulting, etc. http://etailersdigest.com/resources/members/index.htm And
we have a form there for you to tell us about you. As I said when I first
proposed this idea, we have "known" each other for a long time, yet we
often don't know anything about each other. So, tell us who you are and
what you do.
Now, let's get to everything for the retailer.
Sincerely
George Matyjewicz, PhD
Chief Global Strategist, GAP Enterprises, Ltd.
mailto:georgem at gapent.com
http://www.etailersdigest.com
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[2] Free Marketing resources
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Has anybody tried Froogle yet? It is a free service for you to display and
sell products. You complete information and upload a file which contains
product name, description, image location, price and buying location. It
then becomes a store.
Apparently they are trying to copy Yahoo stores
We are in the process of loading one of our sites. They problem we
encountered is we got an error, but don't know what to do, and support says
they will reply in a week.
Anybody have experience with this?
George
+++ [Next Post] +++
Question: I want to mention Product Wire in E-Tailer's Digest. How does
one go about getting products featured here?
Answer:
Our editors choose the products for Product Wire from the many submissions
they receive. There is no charge, we play no favorites - just what we find
interesting and of value. The only requirement is digital artwork, and of
course there is no guarantee that any particular submission will be
used. <http://www.giftsanddec.com/ontrend>www.giftsanddec.com/ontrend
Thanks for your interest.
Quinn Halford
Gifts & Decorative Accessories
360 Park Ave. South
New York, NY 10010
646-746-7357
www.GiftsandDec.com
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[3] GMROI and Turn & Earn
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Hi George,
Does this guy have it right?
Jerry Grooms
www.BarCodeItNow.com
====
GMROI and Turn & Earn
By Bob Boyles, Principal
Smarter Distribution
There are numerous measurements of how well a distributor’s inventory
performs. Some of the most meaningful that I've found over the years are
GMROI and Turn & Earn. These measurements take into account the turns and
gross margin and by combining these two measurements present an overall
return on the investment that a company is getting from its inventory.
One of the age-old arguments in the distribution world is between sales and
purchasing. This rivalry outdoes any competition you'll see on a Saturday
afternoon on a football field. Sales is constantly complaining that there
is not enough inventory and purchasing is equally adamant that the company
has enough inventory and the real problem are those salesmen that won't go
out and sell what the company stocks. These measurements are some of the
best tools distribution management has for refereeing this battle.
Both measurements combine the company’s inventory and the sales margin that
the inventory is generating to display an overall return on investment.
GMROI is short for Gross Margin Return on Investment and is defined as:
Gross Margin / Average Inventory. Let’s examine the components to make sure
you’re using the correct data.
Gross Margin First, it’s gross margin on stock sales. That means
excluding directs and non-stocks. Gross Margin of course is year-to-date
stock sales minus year-to-date stock cost
Average Inventory This is an annual number and should be the average
inventory on-hand over the course of a year. All of the components of GMROI
should be annual numbers and this number itself should be thought of as an
annual number.
The GMROI number is expressed in relationship to the number one. Anything
under 1 and that line did not pay for itself, anything with a GMROI over 1
and the line paid for itself. GMROI can also be calculated as:
YTD Gross Margin % * Annual Turns = GMROI
The components of this GMORI formula are:
Annual Turns - Turns are calculated by dividing the cost of material sold
by the average inventory value. Since this is a measurement of inventory
investment non-stock items should always be excluded.
YTD Margin % On Cost This is margin on COST. You usually see margin
expressed as a percentage on sales. Here we’re interested in the percentage
on cost.
This GMROI number now represents the number of dollars that our investment
returned for every 100 dollars
Example Taking a look at several sample product lines we can see that the
return we get off a product line is not only a function of the turns we get
from a product line but also a product of the gross margin we receive from
the products that make up that line.
Line Turns % GMROI
A 2 50% 100
B 3 25% 75
C 4 20% 80
D 5 15% 60
Turn & Earn - One of the first concepts that supply chain companies use to
manage their inventory is the concept of turn and earn. A basic definition
is that the more an item turns (sells) the lower the return has to be to
offset the cost of carrying that item on the shelf. I like to use the
analogy of a grocery store since it’s something we are all familiar with.
That can of beans cost $0.59 cents and the cost may be $0.50 so the grocer
is only making $0.09 on a single can of beans. To buy that can of beans on
put it on the shelf not to mention the shelf it’s sitting on and the clerks
to check you out at the cash register cost a lot more then the $0.09 the
grocer is going to earn on that single can of beans. But the grocer doesn't
sell just one can of beans per year (1 turn). From that same spot on the
shelf he'll sell that same can of beans 52 times or more. That spot on the
shelf now generates 52*.09 or $4.68 per year in profit. That amount of
profit can go a long ways towards paying for the store and the salaries of
the staff to keep the store humming.
Turn & Earn is defined as: Turns x Gross Margin Percent
Let’s examine the components of T&E to make sure we’re using the correct data.
Gross Margin % Gross Margin of course is year-to-date stock sales minus
year-to-date stock cost divided by year-to-date stock cost. This is the
gross margin percentage that this group of products returned.
Annual Turns - Turns are calculated by dividing the cost of material sold
by the average inventory value. Since this is a measurement of inventory
investment non-stock items should always be excluded.
T&E Factor The T&E factor is usually expressed in terms of dollars. Any
group of products with a T&E above 100 and that group of products paid for
itself. Anything with a T&E under 100 and that inventory group returned
less than what it cost to put the inventory on the shelf.
Examples -Taking a look at several sample product lines we can see that the
return we get off a product line is not only a function of the turns we get
from a product line but also a product of the gross margin we receive from
the products that make up that line.
Line Turns Gross Margin % T&E
A 3 .20% 60
B 4 .25% 100
C 5 .18% 90
Using GMROI and Turn & Earn - The GMROI and T&E numbers can point out those
areas of stock that aren't carrying their own weight. Take the data table
above as an example. Line B is the only line that is achieving the desired
T&E factor. Line A & C are having problems. For those product lines where
the margin cannot be raised then inventory will need to be reduced.
Example: If you’re approached by the company rep for product line A and
he/she is trying to talk you into adding some new products that his company
has just come out with the answer that he/she is going to get is now very
obvious.
Be careful to apply the GMROI and T&E measurements at the company, line or
branch level and not at the product level. Then these types of measurements
get too granular they can be misleading. There are number of factors that
must be taken into account when making decisions at the product item level
that are not reflected in the calculations.
The low GMROIs are obvious problems but are there GMROIs that is too high?
This is like asking “Is it possible to make to much money?” The surprising
answer is yes. If your GMROI gets above 200 you might not be stocking
enough material and killing yourself with operating expenses. Also if your
margins are too high they could be high enough to invite competition.
When ever you are looking at figures like GMROI it also helps to have other
pieces of data like service level and adjusted margin to get the complete
picture.
Weaknesses Using the GMROI as a tool to measure your business is positive
step in the scientific management of assets. However there are some areas
that GMROI does not address.
1. Does not include the various carrying cost of various types of inventory.
2. Does not include the various handling cost of various types of inventory.
3. Does not include various dating and incentives from manufactures that
may lower the cost and increase the return of a product line.
4. Does not consider the growth rate of and future profitability of a
product line.
+++ [Moderator's Comments] +++
Yes Jerry, it looks right. The only issue is the "T&E"
designation. Accounting types know T&E as "Travel & Entertainment."
Comments from list members?
George
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[4] Retail conferences
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Trade Promotion Services will offer 100 seats at a roundtrip fare of $100
(plus tax) from Newark Liberty Airport to Birmingham, England, for North
Americans attending the Glee trade show, Sept. 1820. Visit
www.gleebirmingham.com.
Showroom building 230 Fifth Ave., New York, will hold its first Decorator’s
Day, May 24, to assist interior decorators shopping the building.
Complimentary coffee and a design seminar will be part of the event.
Independents within driving range of Tacoma may want to check out the
first-ever TMS Retail Conference and Expo, designed to show independent
retailers and regional retail chains how to survive in the shadow of the
retail giants, May 18 and 19. Produced by Thompson Merchandising & Supply
Co., Kent, WA, the free event will offer seminars on employee recruitment,
customer motivation and purchasing habits, guerilla public relations, and
online sales. The keynote address by marketing man Bill Glazer is titled
“Outrageous Advertising that is Outrageously Effective.” Some 40 store
fixture suppliers will showcase products and services at Tacoma’s
Convention and Trade Center. For more info, go to www.makeyouhappy.com.
Quinn Halford, Editor In Chief
Matthew Kalash, Managing Editor
www.giftanddec.com
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