Whitney Webb
Week 6 Assignment
October 7, 2012
1. It is important for retailers to know their performance measure to determine how their
performance is standing up to what the customer wants. First, the retailers input method
tells them about the money and resources used to achieve their desired output. The
inventory, number and size of the stores, employees hired, advertisements, markdowns,
store hours, and promotions are factors that a retailer should be knowledgeable about.
Next, the output measures are a direct access to the retailers’ investment plan. The best
way to study the retailers’ use of resources is to understand their sales revenue, gross
margin, and net profit margin. Lastly, productivity measures determined how effective
those resources that have been allocated are being used. In other words, what is the
return on the retailers’ investment? These measures help the retailer compare different
business units and determine success.
2. A multiple store retailer might set their annual performance objectives by observing
more than one store. This would allow them to pinpoint what is working for the retailer
the best and what might be causing a problem and reducing profits. If a product is
selling well at one store and not at another, the company must determine why that is.
Without changing price or quantity, the company can determine if their decision is best
for the long run and will not hurt the company’s financial standings. Another annual
performance objective that might need to be addressed would be turnover. With larger
retailers there is often a larger turnover with employees. Loosing and hiring new
employees cost the retailer money and that could potentially cut into profits. Setting a
standard for employees would be a great way to keep turnover down.
3. Gross margin percentage is more important to the retailer when calculating buyers’
performance because it calculates the percentage of total sales within the store. Net
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Whitney Webb
Week 6 Assignment
October 7, 2012
profit percentage is not a good way to measure performance because it gives the
percentage on the retailers’ fundamental operations and not the retailers’ financial
decisions.
4. The strategic profit model is a summarization of the factors that affect the financial and
marketing performance by determining the retailers’ return on assets. The return on
assets will show the retailer and stockholders the profits relative to the assets it
possesses. This model will help show the retailer how to better balance both profit and
assets that are needed to make a profit. By controlling both profit margin and asset
turnover, a retailer can use the strategic profit model to its optimum capacity.
5. Between Neiman Marcus and Wal-Mart, it is assumed that Neiman Marcus would be a
more likely choice when looking at higher gross margin. Though Neiman Marcus is a
high end department store that sells expensive items, I would have to guess that WalMart has a higher gross margin. Gross margin is the net sales minus the cost of goods
sold. Wal-Mart has its own distribution centers as well as price match guarantee for
shoppers that Neiman Marcus does not possess. These two examples are enough to
lower the cost of goods sold because they travel through less of the chain of command.
Also, Neiman Marcus may not be turning the same gross margin percentage as that of
Wal-Mart. Neiman Marcus sells expensive items and thus their higher expense to sales
ratio exists for them. They are not able to carry a large inventory of these items because
it cost them more in inventory and in return sell fewer items due to the lack of
inventory. Wal-Mart may spend the same amount of money on inventory as Neiman
Marcus, but they possess more inventories that could turn a larger profit. Also,
Neiman’s may not have a high inventory turnover because of their expensive price tag.
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Whitney Webb
Week 6 Assignment
October 7, 2012
The customer may also deem that merchandise useless at prices that high. With WalMart selling household and grocery goods that are bought and sold every day, their
inventory turnover is greater because they sell more units. Neiman’s would provide the
higher asset turnover because each season new items are stocked. The items they sell
are ever-changing unlike that of Wal-Mart that sells staple items that are consumed on a
daily basis. It is hard to know which retailer has the largest net profit margin percentage
because the cost of taxes and interest, as well as operating profit margin could vary
between stores. Both retailers have many stores and it would be assumed that Wal-Mart
has the higher net profit margin percent because they are the world’s largest and most
successful retailer. But at the same time, Neiman’s is in a differentiated market that sets
them apart from their competition.
6. If a retailer opens 10 new stores, it is important that they assess their operating profit
margin and asset turnover. The retailer must determine the profitability of opening 10
new stores and how it will affect their profitability in the future. Also, by opening 10
new stores, the retailer will increase their inventory. By increasing their inventory, the
retailer must know the target market in which they place the stores and better
understand their asset turnover within those new markets.
7. When comparing Gifts To Go and two dry cleaning service businesses, the first
difference that one would notice would be the amount of assets and their turnovers. The
Gifts To Go retailer has to keep a large inventory of gifts on hand that people can
purchase. The dry cleaners have the same assets as far as the building and other
business equipment, but they do not have to possess a large inventory of items because
they sell a service rather than a product. These will in return, lower the operating
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Whitney Webb
Week 6 Assignment
October 7, 2012
expenses for the dry cleaners as opposed to the Gifts To Go store. Also, the cost of
goods sold will allow the dry cleaner a larger opportunity to make a profit because their
overhead costs are lower than that of the Gifts To Go store.
8. $47,220/$33,005= 1.4 (Asset Turnover)
$1,783/$47,220= .04 % (Net Profit Margin Percent)
.04% * 1.4= 0.056%
9. Profit Management path: Urban Outfitters
NOPM%
40.57%
NOP
$786.10
GM
$786.10
NS
$1,937.80
Op Ex
$0.00
NS
$1,937.80
COGS
$1,151.70
ROA
64.08%
AT
1.58
NS
$1,937.80
TA
$1,226.80
AR
$78.00
CA
$686.80
FA
$540
Inventory
$186.10
OCA
$422.70
10. Walgreens is a national chain that directly competed with CVS and Rite Aid in the
drugstore market. Walgreens’ performance that is laid out in the chart within the book
shows that Walgreens is in the middle of the road when compared to CVS, which holds
the top spot, and Rite Aid that comes in last in annual sales. With $63,335 million in
sales each year compared to CVS’s $98,729 million in annual sales. Though Walgreens
has a larger profit margin percent of 27.95% and a larger return on assets at 8.3%, they
are lacking in the pretax profit margin as compared to CVS. Rite Aid shows that they
are the bottom of the barrel with no pretax profit margin, net profit margin, and return
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Whitney Webb
Week 6 Assignment
October 7, 2012
on assets. All in all, Walgreens performance is better than that of CVS be a small
margin and better than Rite Aid by a landslide. In the 2011 financial performance table,
all three retailers saw an increase in annual sales. Walgreens seems to be the only
retailer that seems to have made a change for the better and increased their gross profit
margin and net profit margin over and above what is listed in the book. Both CVS and
Rite Aid saw a decline in profit and turnovers.
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Whitney Webb
Week 6 Assignment
October 7, 2012
Article Review
In recent years, Main Street America and Wall Street have shown a disconnection that
has hindered the ability of investors to invest comfortably. These investors are worried about
their financial futures because it is costing them more money in recent years to keep up with the
retail market. These investors are mainly baby boomers that have been hit hard by the stock
market and current financial state of this country (Bachrach, 2012). These baby boomers were
investing because they had the money to use, but now their retirement future is not looking up
due to inflation. In the past, financial advisors would recommend an investor have 65 percent of
their assets tied up in stocks, but with today’s climate it is suggested to only put in 40 percent
with 20 percent of that toward large international corporations (Bachrach, 2012). It is also
advised that the mortgage sector of the bond market will be in demand and result in gains
(Bachrach, 2012). The point is to make your money work as hard for you as you did to earn it by
determining what total asset allocation is right for you (Bachrach, 2012).
Bachrach, N., Finke, E. Simply Money: Financial Strategy for Sidelined Investors. September
14, 2012. Retrieved from:
http://news.cincinnati.com/article/20120914/BIZ/309130085/Simply-Money-Financialstrategy-sidelined-investors
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