Are You Asking the Right Question?
By Marc Weiss - CEO, Management One
Is the question you are asking what to do about inflation, recession, or stagflation, and how to plan and prepare for that?
In my experience, the right question to ask yourself is how do I take advantage of any difficulty or challenge that is placed and turn it into an opportunity? A great place to start is recognizing the positive shift that has occurred in retail, and building on it, even in what may appear as a continuing uncertainty. The shift is visible when you look at the seismic change in metrics.
Metrics Matter
Metrics matter because they take the emotions out of decision-making. Remember that problems and opportunities can be solved using data. In the absence of data, everything else is an excuse.
Here is a snapshot of the changes in key metrics across our entire client base. We have one of the largest granular databases of Indie Retail in North America. This represents the current rolling 12 months (June 2021 through May 2022) compared to the same rolling 12 months from the same period of (June 2018 through May 2019).
IMU up 4.2 percentage points
MMU up 5.5 percentage points
Inventory turn increased 73.7%. This is awesome.
12-month rolling sell-through was up 20.5%
GMROI was up 105%
The bounce-back from the Covid Pandemic has yielded some astonishing results and it challenges us to reimagine what benchmark metrics we are going to pursue going forward.
The above metrics resulted in the following changes in increased cash margin.
Year-over-year results in increased cash margin. (Revenue minus merchandise purchases)
2020 vs 2019 increase of 8.9%
2021 vs 2020 increase of 36.9%
2022 vs 2021 increase of 21.5%
There has been a large accumulation of cash from high inventory rotation and increased margins due to decreased markdowns, driven by high demand and also Federal Stimulus. Given increased borrowing rates, preserving cash is now a key focus.
The key to maintaining these metrics is managing the data and pulling levers. Again metrics matter. Managing the right metrics creates better cash margins. Through accurate analysis, metrics will drive decisions and empower business owners to move levers to adapt as conditions change.
In spite of all the supply chain disruptions, our retailers have managed to keep the spigot open on the inflow of new merchandise.
Here are a few key takeaways to be smart in the next 12 months.
Focus on sell-through and higher turn and cash will follow. The cost of sitting on unproductive inventory when the cost of money is high and inflation is present undermines the financial health of the operation.
Keep inventory fresh and buy as close to the season as possible, trends change and you always want to be invested in trends that are in demand.
Time does not benefit you.
As expenses rise, focus on performance and productivity.
Make all salespeople a variable expense - coach their performance and base it on incremental improvements.
Target your marketing and focus on results. Marketing costs are increasing, but as long as the ROI is there you are growing. Spending without knowing, measuring and having a goal for your ROI is throwing money out the door.
There is some additional good news. WSJ reported on June 19th, from Barclays that services spending like travel, dining, and home cleaning services are starting to dip, but not retail sales, except for cars. (Due to a lack of inventory and increased financing). This means that demand for your products is sustaining.
Emotion-based decision-making creates fear and bad decisions. Pay attention with focus and action on the metrics and that will shape your success.
Onwards and Upwards.
Marc