Page 81 - DMGT553_RETAIL_STORE_MANAGEMENT

Retail Store Management

Notes Stock to sales ratio is the monthly view of turnover. It is the amount of merchandise in the store
at the beginning of a given month divided by the amount of sales of merchandise for the month.
It provides you with a quick view on how well you manage the inventory. For instance, if you
have inventory of $120,000 and $30,000 in sales for the month, then your stock to sales ratio is
four to one. This means that it will take four months of selling at your current rate to sell
through the average monthly inventory.
Knowing that there are twelve months in a year, this means you are turning your goods at the
rate of three times a year (twelve months divided by a four stock-to-sales ratio). However, if
your (realistic) goal is to achieve a stock-to-sales ratio of three to one, that is a turn of four—you
are overstocking and need to find ways to operate on less inventory or to sell more!

Task Gather more information on various quantitative terms related with a retail store.
And make a chart on it.

Your ultimate goal should always be to develop the highest level of sales from the smallest
possible inventory. But be careful what you wish for. If you try to push your turns too high, you
may run out of merchandise that your customers want, and they may go elsewhere.

The number of turns for which you should aim varies by type of retailer. Thus, before you set
your target, you should find out what is the industry norm. Actually, this is another reason to
belong to the trade association most related to your type of retail store. Such organizations can
give you the average guidelines for turn and stock to sales ratios for different seasons that
should help you keep the right amount of inventory on hand, particularly through your first
few years in business.

!
Caution You should review your turnover ratio every week.
The higher the turnover, the stronger the retail business will be. With a high turnover, you have
less money invested in the inventory at any given time and a lower risk of carrying products
your customers does not want to buy.
You get higher sales from the same amount of space, have fresher goods in the store, and can
always feature new items to tempt your customers. There’s nothing more disappointing to a
repeat customer than seeing nothing but the same old stuff. While turn rates are innately different
between different categories of retail; within each category there are two basic, and quite different,
strategies that you must decide upon when setting your turnover objectives:
1. High margin, high price, and low turnover
2. Low margin, low price, and high turnover

A low turnover item must give you a high margin in order to pay the rent for sitting on your
shelf for a long time. In contrast, a high turnover item obviously has to pay less rent, and
therefore can make a lower margin.
Strategically, you can mix these two turnover concepts as long as one dominates the other so
you are giving a clear message to the customers. For instance, in your toy department, you may
price Barbie at cost to create a high turnover, but price her accessories higher to create more
margins, expecting that customers who buy Barbie because of the price will pick up the other
items because no little girl can exist without at least three new outfits for her doll!
Obviously, you want to turn all your merchandise as quickly as possible. The trick is to recognize
that you may have to stock low turnover items as a service to your customers to induce them to
come to your store and buy the more popular items.

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