How to Manage Inventory For Maximum Profit By George Hines – President of George’s Music

1. How to Manage Inventory For Maximum ProfitBy George Hines – President of George’s Music

2. “No Retailer ever filed bankruptcy because their turns were too high” -Michael Gould Chairman of Bloomingdales

3. Question • Is Inventory: • an Asset • a Liability

4. Problem: Too Much Inventory Reduces Available Cash IncreasedFreight IncreasedHandling and Storage IncreasedShrinkage Increased Costs in Obsolescence IncreasedMarkdowns to Reduce levels Increased Costs to Promote and Sell Inventory Management

5. PROFITS Diamond of DOOM

6. $ $ $ $ $ We need to turn the DOOM & GLOOM into

7. Solution: Step One: Understand GMROI Step Two: Invest Wisely – Focus on Profits Step Three: Measure with Key Indicators Inventory Management

8. Universal Laws: “Law of Expectation” Make a decision

9. $10,000

10. Gross Margin Return on Investment Step 1 – Understanding GMROI Formula: (Annual GM$)÷ (Avg. Annual BOH$) = GMROI

11. Gross Margin Return on Investment Example 1 Store Sales for the year are 1 million Gross margin % is 30% Gross Margin $ for the year is $300,000 Avg. Annual BOH Inventory is $300,000 $300,000 (GM$) ÷ $300,000 (Avg. BOH$) = 1 (GMROI)

12. Two Ways to Increase GMROI: Increase GM$ Increase Turn

13. 1% increase in Gross Margin on 1 million dollars in sales = $10,000 extra profit

14. Gross Margin Return on Investment Example 2 – Increase Margin Store Sales for the year are 1 million Gross margin % is 40% Gross Margin $ for the year is $400,000 Avg. Annual BOH Inventory is $300,000 $400,000 (GM$) ÷ $300,000 (Avg. BOH$) = 1.33 (GMROI)

15. The NEW Norm: More from Less Embrace the 80/20 Rule

16. Gross Margin Return on Investment Example 3 – Increase Turn Store Sales for the year are 1 million Gross margin % is 40% - Increase Turn Gross Margin $ for the year is $400,000 Avg. Annual BOH Inventory is $200,000 $400,000 (GM$) ÷ $200,000 (Avg. BOH$) = 2 (GMROI)

17. Gross Margin Return on Investment REVIEW Example 1: GMROI is: $300,000 (GM$) ÷ $300,000 (Avg. BOH$) = 1 Example 2:Increase Gross Margin $ GMROI is: $400,000 (GM$) ÷ $300,000 (Avg. BOH$) = 1.33 Example 3:Increase Gross Margin and Turn GMROI is: $400,000 (GM$) ÷ $200,000 (Avg. BOH$) = 2.0

18. Step 2: Invest Wisely – Focus On Profits • Cleansing the Inventory The 80/20 Rule • Budget and Purchasing Worksheet 3. Purchase Inventory by GMROI

19. Cleansing the Inventory 1. Ranking Inventory… 80/20 Rule…A List • YTD Gross Margin Dollars (Descending) • YTD Units Sold (Descending) • Eliminate Old and Bad Stock

20. Budgeting

21. Purchase Inventory by GMROI 1. MIX Large vs. Small Goods by GMROI • Rank Vendors by GMROI • Rank Departments by GMROI • Rank Items by GMROI

22. It’s all about the MIX

23. Funnel Down

24. What is your Mix of Goods? GM$ and Turn Large Goods GM$ and Turn Small Goods

25. Large Goods vs Small Goods The Power of GMROI

26. 30% Margin 2 Turns What is your Vendor Mix? Vendor Vendor A B • 35% Margin • 3 Turns WINNER!

27. Vendor vs Vendor The Power of GMROI

28. What is your Dept Mix? Keyboards – Dept. B Guitars – Dept A

29. Department vs Department The Power of GMROI

30. What is your Item Mix? 25’ XLR Cable Studio Mic Pack • Cost $5 estimate • Sell $15 estimate • Invest $65 (13 units) • Profit : $195 estimate • Cost $65 estimate • Sell $99 estimate • Invest $65 • Profit : $34 estimate

31. Item vs Item The Power of GMROI

32. Measure: Key Indicators Chart The Power of GMROI

33. Review ACTION PLAN • Make a Decision on how much you want to earn$_________________ • Invest Wisely – Focus on ProfitChoose your method • Measure Progress with Key Indicator Worksheets

34. Make Inventory an ASSET Not a Liability

35. Retail Owners Institutehttp://www.retailowner.com/ Look at GMROI Calculators Financial Cash Flow Worksheets Training Tools Benchmarks for the industry George Hines – President, George’s Musicghines@georgesmusic.com

36. Result: Happy Store Owner