How to Improve Your Profit Margin

How to Improve Your Profit Margin

What’s your margin improvement potential?

Inventory buy decisions directly impacts your bottom line. Find out how much your buy decisions could be costing you.

A survey of 200 decision makers in US non-grocery retail companies was conducted by Coresight Research on managing retail inventory. Its independent research findings are used as the basis for this margin improvement calculator.

Check out your Potential Margin
Improvement
Enter your total annual net sales: $
Enter your margin (IMU) for same year: %
Calculated cost (COGS):
Markdowns: 40%
Lost Revenue: 12%
Unplanned Markdowns: 53%
Opportunity breakdown
Overbuying: 30%
Wrong Products: 16.5%
Misallocation of Inventory: 6.9%

Your opportunities in a nutshell

All results tabulated in this summary and above are based on Coresight Research survey report*.

According to the report*, “the average full-price sell-through rate among US nongrocery retailers is 60%.” Based on the net sales you entered above, that means 40% or $— of your sales are from markdowns.

The report* “estimates that markdowns cost US nongrocery retailers approximately $300 billion in revenues in 2018, equivalent to around 12% of all US nongrocery retail sales.” Your potential lost sales revenue is $—.

According to the survey* results, “misjudgments regarding inventory account for a total of 53% of unplanned markdown costs for retailers.” This equates to $— of unplanned markdowns for you. If you eliminate this completely, it would improve your margin by –%. However, we believe it is likely not possible to reduce 100% of your unplanned markdowns since a variety of factors can contribute to this beyond the reasons listed below. We recommend that you reduce these calculations by 25–50% or a rate commensurate with your business to account for unforeseen factors.

Let’s break this down:

  1. “The inventory ‘mistake’ with the biggest impact on markdowns is overbuying inventory, which the survey* estimates, is the primary impetus for around 30% of all markdowns.” This represents for you a $— savings, and a potential margin improvement of –%. » See how merchandise financial planning can help prevent over/under buying.
  2. “Buying the wrong type of products also accounts for a double-digit share (16.5%) of unplanned markdowns” equating to $— for your business, with a potential margin improvement of –%. » See how to plan the right assortments.
  3. Misallocation of inventory accounts for a further 6.9% share,” which translates to $— savings for you with a potential margin improvement of –%. » See how to layer your buys.

Again, we recommend that you take a more conservative approach and reduce these improvements by 25–50% or a rate that better reflects your business.

See below additional resources of strategies you can implement to prevent overbuying or buying the wrong products, and misallocation of inventory.

Investment in technology is your best ROI.

The same report* found “an overwhelming 72% of respondents who rely on data entry/manual input tools said that their company faces challenges from underbuying and/or overbuying inventory”. This is in-line with our findings.

Spreadsheets break, formulas get overridden, and data can very easily be manipulated by individual users. And don’t forget typos when data is transcribed multiple times for various systems. These are just some of the benefits an automated and centralized technical solution delivers.

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Here are some more additional curated resources for you by our team of retail specialists. Enjoy!

Strategies to prevent overbuying

While buyers use Assortment Planning or Buying to construct their product vision and create beautiful assortments to entice customers. Merchandise Financial Planning is used by planners to ensure the buys from assortment plans meet the strategic financial goals of the business. These two planning tools work in concert to ensure your buys are on target and alerts you when a category is over or under bought.

What can you do about buying the wrong products?

Creating a personalized customer experience within each of your sales channels starts with your assortment. By having the right products, in the right quantities, you can make your customers feel like the entire product line was customized just for them.

Misallocation of Inventory

The more closely a buyer can match product assortments to customer demand, the better their category will perform. Buy tailoring allows a buyer to select which groups of stores or channel a product is suitable for, and quickly calculate how many units are needed to satisfy that need.

2020-11-13T18:50:45-05:00
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