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McGraw-Hill/Irwin
Retailing Management, 6/e Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
6-2
Retailing Strategy
Human Resource
Retail Locations Management
Chapters 7,8 Chapter 9
Retailer Objectives
Asset Turnover
6-5
Gross 100
Margin
-
40 Cost of
Net Profit Goods Sold
Net Profit 15 60
Margin -
15% Total
Sales Expenses
100 25
The Strategic Profit Model:
6-8
Asset Management
Inventory
5
Sales
+
Asset 100 Current Accounts
Turnover Assets Receivable
2.5 10 4
Total Assets
40 + +
Other Current
Fixed Assets Assets
30 1
6-9
Net Profit
Gross Mar 100
15 40 -
Net Profit Margin Cost Goods Sold
÷ -
15% Sales Total Exp. 60
Return on ( Net Profit
Net Sales ) 100 25
Assets Times
Inventory
37.5% Sales 5
(Net Profit
Total Assets ) Asset Turnover 100 Current Assets +
A/R
2.5 ÷ 10 4
Total Assets
( Net Sales
Total Assets ) 40 +
Fixed Assets
+
Other Cur Assets
Net Profit Net Profit Net Sales 30 1
= x
Total Assets Net Sales Total Assets
Financial Implications of Strategies Used By 6-10
COGS
Gross Margin for
6-14
Gross
GrossMargin
Margin == Gross
GrossMargin
Margin%
%
Net
NetSales
Sales
Federated:
Federated: $$ 6,333
6,333 == 40.5%
40.5%
$15,630
$15,630
Costco:
Costco: $$6,014
6,014 == 12.5%
12.5%
$48,107
$48,107
Operating Expenses
Types of Retail
Operating Expenses
Net Profit
Inventory Turnover
Inventory Turnover
6-22
Asset Turnover
Return on Assets
Inventory Turnover
Asset Turnover
Return on Assets
Net Sales
- Gross
Profit Management
margin
Cost of
goods sold
- Net profit
Variable
expenses Net profit
+ Total margin
expenses Net Sales
Fixed
expenses
Return on
x
assets
Inventory
+ Net sales
Asset
Accounts
receivable
Total current
assets turnover
+ + Total assets
Productivity Measures
Should include:
• numerical index of performance desired
• time frame for performance
• necessary resources to achieve objectives
6-36
Category, Departments
and sales associates
implement strategy
6-37
Corporate
Bottom Up Planning
Buyers and Store Operation managers
managers estimate must be involved in
what they can objective setting
achieve process
6-38
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
6-40
Examples of Performance
Measures Used by Retailers
Level of Output Input Productivity
Organization (Output/Input)
Cost of Markdown as a
merchandise percentage of
sales*
Benchmarks
Sources of Information