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Are you any good at retailing?

 

Open signAsk an orthopaedic surgeon what ‘ortho’ means and they will know. Ask a COBOL programmer what COBOL means and they will know.

And by ‘know’ I mean know the actual definition and the roots of the word and exactly how that relates to their job.

Ask most retailers what the word ‘retail’ means, and you get a blank stare, or at best they might mumble something generic about ‘buying and selling’ or ‘selling to customers’ or the like.

The word retail is derived from the Old French tailler’ (pronounced tai –yeah) and means ‘to cut’. It is the same origins of the word ‘tailor’.

It refers to what we today call ‘bulk breaking’, which means that a retailer is a breaker of bulk: we buy a pallet or crate full, break the bulk, and sell individual (tailored) units to the customer.

The theory lesson is over. What does that mean in practice?

If you want to know if you are any good as a retailer, you need to understand how well you do at breaking bulk. That stands to reason, right?

My question to you is then how do you measure this? What is the key metric of a breaker of bulk?

It is widespread practice to use the word stockturn to refer to the turnover rate of merchandise.  That it is, how many times (per year) a store turns over its stock.

There are two ways of doing this calculation. The distinction is between using retail prices or cost prices. The norm is to use annual data, as monthly data would result in fractions, which are hard to work with and benchmarks have been recorded based on annual numbers anyway.

Either of the following two formulae can be used:

Total Sales
__________________________

Average Inventory at Retail Prices

 

Total Cost of Sales
____________________________

Average Inventory at Cost Prices

 

If you want to know if you are a good retailer, you should know how good your stockturn is. But there is a twist in the tale – faster is not always better.

A good retailer is not the one with the fastest turn, but the one with the optimum turn. Too high stockturns are usually indicative of being under capitalised and results in high distribution costs, double handling and administrative inefficiencies, and loss of buying power, which all ultimately means that excessive stockturn is less profitable.

Stockturns that are too low are more commonly experienced, usually as a result of buying poorly or marketing poorly.

The good retailer is the one that can achieve the Goldilocks standard – getting it just right.

I understand that some people reading this may think that metrics are theoretical, even possibly unnecessary except for sales and profits. Not everyone appreciates why a consultant would want to do that analysis in the first place.

Hopefully now you can appreciate that (using and understanding) metrics can go to the essence of the craft of retail and will reveal how good we are at being a ree-tai-yeah.

Or at the very least, now you know what you really are.

Have fun!

Dennis

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