1. What number to use?
When it comes to running a retail store, some numbers are better than others.
GM%   = Good
GMROI = Better
DPP  =  Best

Believe or not, but many retailers still focus on (either) Sales (daily takings) or net profit. For those retailers, coming to grips with GM% would be a huge step in the right direction. Remember that if you read US-based sites/books, they use Mark-Up% and GM% interchangeably whereas we tend not to.

GMROI is so easy to understand and calculate that it is useful because it is likely to be used. The GMROII concept is easy to understand. It also makes intuitive sense. As a retailer, your product mix is a combination of higher/lower margin products that sell at different rates.

Would you rather have:
•    A product with 50% GM that turns over 2x a year, or
•    A product with a30% GM that turns over 4x a year?
GMROI answers that question.

DPP (Direct Product Profitability) is really only accessible to large chains because you need sophisticated systems to track and calculate the direct expenses associated with individual products. Whilst it is technically a better measure of performance, its complexity rules it out of reach for most SMEs.

There is a pretty decent whitepaper by Profit Planning Group uploaded to RetailsmartResultsGroup that explores the relative advantages and disadvantages of DPP. They favour DPP, so it will give you a different perspective. (Registration required, but your name is never shared with anyone…)
For an explanation (and example) on the actual calculations (including pretty pictures) read a related post on retailsmart.com.au 

2. Are consumers abandoning premium-priced goods?
The answer is NO. There is a research paper that supports this view. (You have to register and your name is passed on to their sponsors – so don’t say I did not warn you. Or you can just trust me.)

What has happened is that customers are starting to embrace luxury brands again, but the price points have effectively been reset because of some fierce discounting in recent times. Consumers are not  prepared to pay what they were before, and the are prepared to haggle.


3. Are people prepared to pay a premium for green?
The result of the poll (large enough to reliable indicator) is 80:20 - the vast majority (about 82%) don’t pay the extra few dollars on their flights to offset carbon footprints. And that includes me…Since this is a firm indicator of actual behaviours (as opposed to asking people about their opinions, one can safely assume that whilst being green might be important, it is not yet important enough pay for it.

4. What are the rules of discounting?
Rule 1: Don't - unless you really have rectify a buying misjudgement etc.
Rule 2: Make sure you pick Known Value Items (KVIs) as loss leaders if that is your plan
Rule 3: Use coupons rahter than price cuts if you can involve your supplier and share the pain
Rule 4: Use GMROII to decide when yo need to start discounting (not habit, or because it feels liek you are doing something proactive.)

Dennis

PS: The March Issue of the RetailsmartResultsGroup Newsletter is due out on TUE (tomorrow). It includes links to:

• Top 3 Blog Posts
• Top 3 Ads of all time
• Top 3 Online Marketing Tools
• A fantastic case study of an innovative Aussie footwear retailer (and a reader here on IR!)
• And of course something to think about and something to laugh about.

Register if you’d like a copy. (The group grew by 12% last month alone, so somebody finds it useful…)