Page 179 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes Many retailers use the performance indicators of gross margin % (after markdown) and weeks
cover to measure performance. These are very commonly available but used in isolation from
each other, they are of limited value. Gross margin % gives us a measure of reactive profitability
without taking into account the costs of stockholding investment. Weeks cover tells us how
effectively we turned our stock without informing us about relative profitability.
There are three methods of analyzing merchandising performance:
1. ABC analysis
2. Sell through analysis

3. Multiple Attribute method.
ABC Analysis: Pareto (ABC) Analysis (a.k.a 80/20 Rule)
ABC analysis rank orders merchandise by some performance measure to determine which
items should never be out of stock, which items should occasionally be allowed to be out of
stock and which items should be deleted from the stock selection. An ABC analysis can be done
at any level of merchandise classification form SKU to department.
ABC analysis utilizes the 80:20 principles which imply that 80% of the sales come from 20% of
the products. The first step in the ABC analysis is to rank order SKU’s using one or more criteria.
The most important performance measure for this type of analysis is:
Contribution Margin: Net sales – Cost of goods sold – Other variable expenses
The next step is to determine how items with different levels of profit or volume should be
treated differently. The buyer may define as A items those that account for 5% of items and
represent 70% of sales. B items represent 10% and 20% of sales. C items account for 65% of the
SKUs but contribute only 10% of sales and D as those items for which there were no sales in the
past season.

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Caution It could be confusing trying to connect merchandise management to financial
performance.

Sell Through Analysis

A sell through analysis is a comparison between actual and planned sales to determine whether
early markdowns are required or whether more merchandise is needed to satisfy demand.
There is no rule which can determine when a mark down is necessary. It depends on experience
with the merchandise in the past, whether the merchandise is schedule to be featured in advertising
or whether the vendor can be reduce the buyers risk by providing markdown, money etc.

If actual sales stay significantly ahead of planned sales, a reorder should be made.

Multiple Attribute Method

This method uses a weighted average score for each vendor. The following steps are followed:
1. Develop a list of issues to consider for decision making, like vendor reputation, service
merchandise quality, selling history etc.

2. Give importance weights to each attribute
3. Make judgments about each individuals brand’s performance on each issue.

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