Most retailers know that they should prioritize the management of their largest asset, inventory, and their largest expense, payroll. Pace has found that while retail management does understand the importance of these two areas, they often focus on the wrong factors.
- They focus on margins when gross profit dollars are more important
- They focus on payroll cost when productivity of staff will achieve the same cost ratio plus increased sales
- They focus on a broad assortment when productivity of space is more important
- They focus on margins to achieve ROI when turnover is more important
The US has more retail square feet per-capita than anywhere else in the world. Competition, moreover, is increasing. Only the retailers that have efficiencies in these two areas will be able to survive or be in a position to grow.
Gross Profit Dollars
Many retailers concentrate on maintained margins when the real goal should be optimizing gross profit dollars. Pace has a 20-year track record of generating gross profit dollars well above industry benchmarks. The first step is analyzing markets. Once this is complete, we recommend a repositioning
that would involve modifications in vendor structure and assortments. Goals are
established and a transition program is developed. These steps combined with implementing more
precise buying methods have improved gross profit dollars for every client. This performance has
been achieved in apparel, accessories, home and footwear.Productivity of Staff
There are two methods to address selling cost. You can budget man hours or you can increase employee performance. Both methods will achieve the same payroll cost percentage. The latter, however, achieves the same ratio with higher gross profit dollars.
Pace trains retail personnel in three key areas:
1. Buying and Merchandising
2. Sales Training: Train the Trainer
3. Sales: Customer Service
At the start of any project, benchmarks of current performance are established. As training takes place, the increment of performance is charted. Measurement tools are implemented that enable management to monitor performance for cost/benefit ratios. Should our engagement end, management will still be able to measure performance levels.
Productivity of Space
What gross profit dollars does your company generate per square foot? In our productivity of space analysis, frequently we have found classifications and departments that are significantly under performing. Just as in Assortment Analysis, classifications that are performing above average should be expanded and those that are under performing should be reduced or eliminated. The same approach should be used to space analysis. The most important per square foot number is gross profit dollars, not sales.
Few shoe or apparel stores average gross profit dollars per square foot in the $180-$450. Pace has achieved this performance in undistinguished real estate, located in small and midsize markets. In more metropolitan demographics, performance is considerable higher.
Return on Investment-ROI
Inventory turnover has a much greater impact on ROI than margins. Pace has consistently delivered to clients inventory turnover 50-100% greater than industry benchmarks. This performance has been achieved in even our smallest clients with volume levels where high turnover is much more difficult. In a very profitable nationwide chain, Pace increased turnover by over 30%.