Lecture Retailing management (6/e): Chapter 6 - Levy Weitz

Stores:

$350,000
$700,000

GiftstoGo.com $220,000
$440,000

=

50%

=

50%

626


Operating Expense Percent
Operating Expenses
Net Sales
Stores:

= Operating Expenses %

$250,000
$700,000

GiftstoGo.com: $150,000

$440,000

=

35.7%

34.1%

627


Net Profit Percentage
Net Profit = Net Profit Percentage
Net Sales
Stores:

$ 59,800
$700,000

=

8.5%

GiftstoGo.com:

$ 45,500
$440,000

=

10.3%

628


629

Balance Sheet Information for Gifts to Go
and Proposed Internet Channel


Inventory Turnover
Cost of Goods =
Average Inventory

Inventory Turnover

Stores:

$350,000
$175,000

=

2.0

GiftstoGo.com:

$220,000
$ 70,000

=

3.1

630


Asset Turnover
Net Sales =
Total Assets
Stores:

Asset Turnover

$700,000
$380,000

GiftstoGo.com: $440,000
$211,000

= 1.84

= 2.09

631


Return on Assets

632

Net Profit Margin x Asset Turnover = Return on Assets

Stores:
8.54
Giststgo.com 10.3

x
x

1.84
2.09

= 15.7%
= 21.3%


633

The Strategic Profit Model
Net Sales

Cost of
goods sold

Gross
margin

Variable

expenses

+
Fixed
expenses

Total
expenses

Profit Management

Net profit
Net profit
margin
Net Sales

x
Inventory
Net sales

+
Accounts
receivable

Total current
assets

+

+

Other current
assets

Fixed assets

Return on
assets

Asset
turnover

Total assets

Asset Management


Productivity Measures
Input Measures – assess the amount of resources or
money used by the retailer to achieve outputs such as
sales
Output measures – asses the results of a retailer’s
investment decisions
Productivity measure – determines how effectively
retailers use their resource – what return they get on their
investments

634

Setting and Measuring Performance
Objectives
Retailers will be better able to gauge performance if it has
specific objectives in mind to compare performance.
Should include:
• numerical index of performance desired
• time frame for performance
• necessary resources to achieve objectives

635


636

Setting Objectives in Large Retail Organizations
Top Down Planning
Corporate Developmental Strategy

Category, Departments
and sales associates
implement strategy


637

Setting Objectives in Large Retail Organizations
Corporate

Bottom Up Planning
Buyers and Store

managers estimate
what they can
achieve

Operation managers
must be involved in
objective setting
process


Financial Performance of Retailers
Outputs - Performance
• Sales
• Profits
• Cash flow
• Growth in sales,
profits – Same store
sales growth

638

Inputs Used by Retailers

• Inventory ($)
• Real Estate (sq. ft.)
• Employees (#)
• Overhead (Corporate
Staff and Expenses)
• Advertising
• Energy Costs

• MIS expenses


Productivity - Outputs/Input
• Corporate Level
– ROA = Profits/Assets (ROE = Profit/Equity)
– Overhead/Sales
• Buyers (Inventory, Pricing, Advertising)
– Gross Margin % = Gross Margin/Sales
– Inv Turnover = COGS/ Avg. Inventory (cost)
• GMROI – Gross Margin/Average Inventory
– Advertising/sales
• Stores (Real Estate, Employees)
– Sales/Square Feet inv. Shrinkage/sales
– Sales/Employee

639


Performance Objectives and Measures
Used by Retailers

640


Examples of Performance
Measures Used by Retailers
Level of

Output

Input

Organization

Productivity
(Output/Input)

Corporate
Net sales
(measures of
entire corporation)
Net profits

Growth in sales,
profits

Square feet of
store space

Return on assets

Number of
employees

Asset turnover

Inventory

Sales per employee

Advertising
expenditures

Sales per square
foot

641


Examples of Performance
Measures Used by Retailers
Level of

Output

Input

Organization
Merchandise
management
(measures for a
merchandise
category)

Productivity
(Output/Input)

Net sales

Inventory level

Gross Margin
Return on
Investment (GMROI)

Gross margin

Markdowns

Inventory turnover

Growth in sales

Advertising
expenses

Advertising as a
percentage of
sales *

Cost of
merchandise

Markdown as a
percentage of
sales*

* These productivity measures are commonly expressed as an input/output.

642


Examples of Performance
Measures Used by Retailers
Level of

Output

Input

Organization
Store operations
(measures for a
store or
department
within a store)

Productivity
(Output/Input)

Net sales

Square feet of
selling areas

Net sales per
square foot

Gross margin

Expenses for
utilities

Net sales per
sales associate
or per selling hour

Growth in sales

Number of sales
associates

Utility expenses as
a percentage of
sales *

* These productivity measures are commonly expressed as an input/output.

643


Illustrative Productivity Measures
Used by Retailing Organizations
Level of

Output

Input

Organization

Productivity
(Output/Input)

Corporate
(chief executive
officer)

Net profit

Owners’ equity

Net profit /
owners’ equity =
return on owners’
equity

Merchandising
(merchandise
manager and
buyer)

Gross margin

Inventory *

Gross margin /
inventory* =
GMROI

Square foot

Net sales /
square foot

Store operations Net sales
(director of stores,
store manager)
*Inventory = Average inventory at cost

644


Benchmarks
Performance of retailer over time – retailer
can compare its recent performance to its
performance in the preceding months,
quarters or years.
Performance of a retailer compared to its
competitors

645


Sources of Information

646

• Balance Sheet (Snap Shot at One Time)

– Asset Management

• Income Statement (Summary Over Time)
– Margin Management

• Annual Reports/ SEC Filings

– http://
www.sec.gov/edgar/searchedgar/companysearch


Federated’s and Costco’s Financial
Performance Over Three Years

647


648

Financial Performance of Federated and
Other National Department Store Chains