Four tools to control residues
04.06.2014 31004

Four tools to control residues

Balance is a natural business process that can be planned and managed. But in order to gain power over them, you must constantly keep your finger on the pulse of your business. Weaknesses are easily calculated using four simple indicators. Which ones, ”said Oleg Gruzdev, the founder of the first showroom gallery in Russia, during the Fashion Retail & Distribution forum.

First of all, the owner of any store must understand that leftovers are not a problem, but as much a natural part of retail and wholesale as purchasing, staffing, customer service. And like any business process, the accumulation of residues has a beginning and an end. It begins at the time of purchase, which means that you can plan the appearance of leftovers in advance.

It is impossible to completely prevent the formation of surpluses, although it is possible to influence the factors that lead to their excessive volume. What are these factors? The purchase of more goods than the store can sell, the reduction in planned sales, the inefficient display of goods, the purchase of commercially ineffective goods, the wrong choice of suppliers and overstatement of the retail price.

To keep the level of balances "in check" will help you, firstly, a thoughtful choice of a supplier. Every season a good supplier finds new interesting brands, provides consulting support and assistance in opening stores, worries about the business of its customers, constantly meets halfway in negotiations and even sometimes gives travel tours.

In addition, you can control the level of balances by regular analysis of the business according to four main indicators: the level of turnover, the ratio of the value of stocks to the monthly sales volume, the total profit on the capital invested in the purchase, and the efficient use of the retail space.

Analysis of the indicator "Turnover": the turnover indicator is the most important figure that should be monitored weekly and monthly. The higher the turnover, the more stable the position of the store, therefore, you should strive for the highest possible turnover for the outlet. Insufficiently high turnover by the store's standards may be associated with incorrect use of product strategies. What is meant? There are at least two product strategies: “high prices with low turnover” and “low prices with high turnover”. Remember that high-margin products should always pay a higher “rental rate” to be on the shelf, as they take up space longer than products with a lower margin. The ideal case is when these two product strategies are mixed in one store, but one of them still prevails.

Analysis of the indicator "Profit on capital invested in the purchase": the store owner is essentially an investor and must constantly monitor how much income this or that asset brings him - including his business. If the profitability for each ruble invested is 1,5 - 2 rubles (i.e. 15-20%), this means that the business does not make sense, and you simply cover the costs, although you could have invested in other investment instruments. An income of 2,5 - 3 rubles per one ruble invested indicates that the store is doing well, and its owner not only covers the losses, but also earns. But this does not mean at all that in order to achieve maximum profit, it is necessary to increase the margin coefficient to 3. High income is achieved in other ways: by increasing the speed of turnover and capital reinvestment, shifting advertising emphasis to high-margin goods and using third-party sources of investment in addition to our own savings.

Analysis of the indicator "Cost of inventory to sales": this indicator is calculated as the cost of goods in stock / sales volume per month. If, as a result of the calculation, you got a ratio of 5 to 1, this means that your warehouse is overstocked. A 3 to 1 ratio is good, but a 2 to 1 ratio is even better. To avoid overstocking of the warehouse and freezing of funds, we recommend our clients not to fill the entire warehouse at the beginning of the season, but to buy additional goods in several stages, for example, once a month or two.

Analysis of the indicator "Efficiency of using the retail space". Small and medium-sized companies in vain do not pay attention to the efficiency of using the retail space, because the competent use of the retail space can increase the store's revenue up to 20-30%. To find out what proportion of the total store area is retail space, use the sales area / total store area formula. A result of less than 0,6 means that most of your retail space is being misused. In the West, an acceptable coefficient is 0,7, which characterizes a situation in which the retail space of a store is related to non-retail space as 70:30. But, of course, the larger the share of the retail space, the better. How to calculate the effectiveness of its use? Divide the sales by the size of the sales area. If the result is that 1 sq.m. brings you less than $ 3,5 thousand a year, which means that either the store has too much retail space and, accordingly, the owners have to pay very high rents, or the sales volume leaves much to be desired. The standard and quite achievable indicator for a clothing and footwear store is 4 - 5 thousand dollars per 1 sq. M. per year, but ideally one "square" should bring from 7 thousand dollars a year and more. However, it should be noted that specific figures are highly dependent on costs, which fluctuate from region to region. There is one more indicator that allows you to assess the efficiency of the use of retail space - the installation coefficient. It shows what share of the store is occupied by equipment, and you can calculate it by dividing the area occupied by the equipment by the area of ​​the sales area. With effective use of the area, this coefficient should be equal to 0,2 - 0,32.

Leftovers are a natural business process that can be planned and managed. But in order to gain power over them, you need to constantly keep your finger on the pulse of your business. Weak spots…
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