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.
