Category Management — Review

turn and earn - retailer's business model

Exhibit 32.9   Retailer’s business revolves around turning inventory.

The review evaluates performance with the objective of identifying key issues, investigating them, and chalking out imperatives and improvement plans.

To identify key issues, category managers need to review key health indicators. The banner/category health kit should comprise:

  • Shopper Insights: Penetration, retention (measures in terms of repeat usage rate or repeat decay rate), spend per shopper, banner loyalty.
  • Store Insights: Sales, share, shopper penetration in-store, spend per shopper, store loyalty.
  • Transactions KPIs: Sales volume and value, market share.
  • Profitability: Gross profit, gross margin.
  • Inventory KPIs: Turn × Earn or Gross Margin Return on Inventory Investment (GMROII).

These measures relate to what makes the retail business tick — attracting and retaining shoppers, increasing their transactions, and improving the margins from the transaction.

The notion of turn × earn is central to the retailer’s business model. This refers to the need to maximize the gross margin (earn) and the number of times they can earn that margin (velocity of inventory turn) (Exhibit 32.9). Annual turn is calculated by dividing the sales value by the inventory (average inventory value).

Turn × earn is equal to the GMROII:

$$ GMROII = \frac{Gross \, Margin}{Inventory} $$ $$ \qquad \qquad = \frac{Gross \, Margin}{Sales} \times \frac{Sales}{Inventory} = Earn \times Turn $$

Investigation is the process of diagnosing an issue to pinpoint the root cause and chalk out recommendations and action plans. Beyond the KPIs, this requires the use of analytic techniques to drill deeper into the data.

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