Inventory

Initial inventory

Units on shelf at beginning of
season (1,919)
HED 460
Inventory

Replenishment/total inventory
 Within the season (weeks 3-17
out of 20), an additional 3,573
units are received, based on
reorders, totaling 5,492
HED 460
Inventory
Average Inventory
 Shelf stock was 1230 units on
average, during the season
 Inventory Turns

Total offering/ average inventory
 5492/1230 = 4.47

HED 460
Sales
96.5% of the units offered were
sold during season
 3.5% of goods will be liquidated
at season’s end
 84.9% of units sold at initial retail
price (sell through)

HED 460
In Stock
On the average, over the entire
season, 97.3% of the SKU’s were
in stock
st markdown, in stock
 Before 1
percentage was 99.8%

HED 460
Lost Sales
Over the entire season, 2.1% of
customers left empty-handed
 Nearly all customers found an
item to purchase up until the 1st
markdown (.0% lost sales)

HED 460
Service Level
97% of customers found their
first choice SKU in stock for the
whole season
 This is not a customer service
variable

HED 460
Revenues
$131,042 sales generated from
customer sales
 $1554 generated from liquidation
(jobbing off)
 Total revenue is $132,596
 Revenue/unit is $132,596/5,492
or $24.14

HED 460
Costs
Wholesale cost of goods was
$68,648
 Additional procurement costs
were incurred


Ordering, handling, shipping,
carrying, overhead
HED 460
Margins

Gross margin


Total revenue (NS) – COGS
 132,596 – 68,648 = 63,949
GM/Sq. Foot

Ratio of GM to sales floor space
 63,049/1500 sq. ft. = $42.03
HED 460
Margins

% Gross margin


GM/NS (total revenue)
 63949/132,596 = 48.2%
% of GM potential

Potential is GM$ obtained if all units
sold at initial retail
HED 460
Margins

Adjusted GM

GM – procurement costs
 63,949 – 14,041 = 49,908
HED 460
Margins

GMROI
GM/Average Inventory $ at cost
 Average Inventory at cost =
average inventory * unit cost



1,230 * $12.50 = $15,375
$63,949/$15,375 = 4.16 GMROI
HED 460
Margins

GMROISL
Since we were only in stock 97.3%
of the time, GMROI is adjusted
 4.16 * .973 = 4.05

HED 460
Financial Output Correlations
LS
AGM
-.76
GM
-.75
GMROI -.90
AI
-.99
AGM
GM
GMROI
.99
.96
.96
-.75
-.73
-.88
HED 460
HED 460
HED 460
In Class Activity – 5 pts.
Complete handout with other group
members, explaining concepts as you
go
 Write down group members’ names
on paper and hand in at end of class
to receive the 5 points

HED 460
Retail Industrial Revolution
Large scale retail growth
 Increase in store size and store
numbers - problems
 Formal retail systems
 From depot to Marketing –
concept of customer service

HED 460
Retail Industrial Revolution



Variations in consumer demand
Local demand vs. territory
Shifts in marketing channel
relationships
Co-operative relationships
 Purchasing direct from producers


Specialization
 Centralization to decentralization
HED 460
Inventory



Asset that did not affect demand
Financial rather than merchandising
Katz at R.H. Macy


Apply scientific practices
Filene – Model Stock Plan 1930
 Industrial practices adapted to retail
HED 460
Model Stock Plan

Establish 3 profitable price points





Allocate 85% inventory to those three
Scientific method of forecasting
Focus on rapid inventory turnover
Adjust inventory levels by consumer
buying habits
Plan purchases based on sales and
cash plans
HED 460
Characteristics of Staple Mdse.
Imperceptible style changes
 Predictable sales patterns
 Relatively short delivery period
 Regular and frequent reorder period

HED 460
Terminology
(R) Rate if Sale
 (RS) Reserve Stock
 (DP) Delivery Period
 (RP) Reorder Period

HED 460
Minimum Stock

Use unit calculation
 (RS + DP) * R
HED 460
Maximum Stock
Minimum stock plus
consideration of reorder period
 Use unit calculation
 (RS+DP+RP) * R

HED 460
Maximum Stock Example

(1+2+1) * 150
 = 600 Max. stock
HED 460
Basic Stock List



OH = On hand
OO = On order
R = Received
If DP = 1 then record R in the same
week you put it OO
 If DP = 2 then record R in the week
after you put it OO


S = Sold
HED 460
Basic Stock List
Unit
Max.
descr. Stock
Moon 18
beams
OH
OO
6
12
12
10
(18(came
6=12) in)
Ultra
stone
27
8
Arabella
35
38
R
------
S
20
OH
8
(1810=8)
7
27
HED 460