tailers, this is finished goods sitting in warehouses or on store shelves.
The reason they consider this a liability is because of inventory risk. Essentially, inventory risk is the risk that the value of the
ugg boots clearance outlet inventory will decline before it's sold. The problem that many
uggs clearance retailers face is that their goods are perishable, either literally in the sense of food spoiling, or theoretically in the sense that items could go out of fashion.
How big is this risk? It depends on the type of retailer. For retailers that sell fashionable items, this risk is significant. If they cannot sell products when they are "hot," it will be hard if not impossible to sell them at full price in the future. The result is lower prices or "markdowns" on the inventory to entice customers to buy the merchandise. Because of the lower prices, the company will make less money, thus profits fall.
Furthermore, when it comes time to buy merchandise for the next season, the retailer finds itself a bit short of cash. In fact, the retailer could decide to
ugg christmas sale buy fewer items next time to hedge against inventory risk. The point here is that high levels
ugg christmas clearance of inventory are often a leading indicator of problems for a retailer.
Many industries and companies use GMROI (Gross Margin Return on Investment) which is a merchandise planning and decision making tool that assists buyers in identifying and evaluating whether an adequate gross margin is being earned by the products purchased, compared to the investment in inventory required to generate those gross margin dollars. This is very
ugg christmas clearance common in the fashion industry, where merchandise is replaced every season.
For every dollar of inventory investment GMROI will help you calculate your return. The industry may average $2.00 return for every inventory dollar, however, some retailers, however are getting $4, $5 or more.
GMROI reveals where actual dollar profits (versus paper profits) are attained in the merchandise plan. It focuses the buyers' attention on return on investment rather than sales as a basis for merchandising decisions.
To calculate GMROI, follow these steps:
Calculate your gross margin or realized gross margin as a percentage.
Calculate the value of your average inventory at cost.
Divide your total sales by your average inventory at cost. This will give you your ratio of sales to inventory investment.
Multiply the result of 3 by your gross margin percentage (1) to get GMROI.
GMROI works for any size store, department or merchandise classification. It will work for each category in each department, each class in
ugg boots on sale each category, each color, each size in each class and so on.
Managing your GMROI results will enable your inventory to work for you and generate increased profits.
George Matyjewicz, PhD is Global Strategist of GAP Enterprises, Ltd. He was formerly President/General Manager of a global digital currency company with customers in 190 countries and Chief E Commerce Officer for a global giftware company. CPA/Consulting firm. He is regularly published as an expert
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