Three key metrics
Stock turn (rate)
The desirable answer varies from industry to industry. For example, a grocery store is looking for a double-digit turn rate. Most of general and specialty retail is looking for a greater than 3.0 turn, for instance a fashion store must aim for at least 4 (seasons) but the better ones achieve 7 to 8 turns a year.
Taking the Cost of Goods Sold, and dividing that number by the average inventory on hand calculates the Stock turn. The average inventory on hand is determined (e.g.) by taking the total of the 12 end of month inventory figures, and dividing by 12.
Gross Margin Return on Inventory
The gross margin return on inventory shows the relationship of your gross margin to the sales and inventory (at cost) of your business. While this number varies from retail industry to retail industry, 140% is a common threshold. (And 140% is the same as $1.40 if you use the calculation method below.)
It is calculated by taking the gross margin dollars, divided by average inventory at cost.
Space Productivity Ratio/ Trading Density
Your business owns or rents a certain amount of square footage. While a large portion of this square footage is dedicated to sales, you probably have a portion of it utilized as office and storage. This ratio tells you how well your business is utilizing that amount of space.
The Space Productivity Ratio is calculated by taking the annual net sales and dividing that number by the total square footage of the business.
Three environmental persuaders
Here are 3 practical tips to get your environment to contribute towards selling more product without any incremental effort after the original set up.
Starbucks have discontinued egg-based breakfast items because the smell was suppressing the smell of freshly brewed coffee – that is how important smells are. Washington State University did some research in a clothing store and found out that when the scent of vanilla was in the store, the sale of women’s clothes doubled; and then when the scent of rose maroc was in the store, the sales of men’s clothes doubled.
Winter clothing sold in the summer requires stores to keep the temperature cooler so you will imagine how warm that nice new sweater feels. Vice versa, summer clothing sold in the winter time should be done in a warmer store.
Dressing rooms increase sales. In fact, studies show that if someone tries something on in a dressing room, they are twice as likely to buy it. This relates to one of the hot buttons discussed below.
Three psychological hot buttons
Scarcity presents an urgency to buy NOW. Using terms like: “limited availability”, “for this week only”, “while supply lasts”, “only 100 units available”, trades on the principle of scarcity. It only works if the scarcity is ‘recent’ and there is real or perceived competition for the scarce product. (The long-running ‘closing down sale’ doesn’t work.)
When given a choice between two products, people will choose the least expensive one. When two different items are placed next to each other, we see them as VERY different thus making it easier to decide which one to buy (the lesser expensive one).
Sampling & Product Trial (Reciprocity)
Sampling food items really does work. Tasting increases sales and far surpasses the cost of the sampled product. Get customers to test drive, take the puppy home for the week-end and try your clothes on. Let them listen to the music and browse the books as much as possible.