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Modern Ways To Maximize Your GMROI - Part 1

Furniture World Magazine
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Article Summary: This article will highlight some modern ways to increase your GMROI by using technology to pull in extra customers and move merchandise while minimizing costs.

View all articles by David McMahon


Part 1: Old school ways to increase this critical measure are just not enough anymore!

By David McMahon

Editor’s Note: This article will discuss ways you can boost GMROI by applying technology to improve your business at the point of sale, in purchasing and receiving. The October/November issue of FURNITURE WORLD will conclude this discussion by looking at pickup/delivery, customer follow-up systems, website and advertising considerations.

The economy has changed. Buying patterns are dynamic. Technology is rocketing forward. Some retailers are keeping pace. They are the innovators. They quickly adapt and take advantage of the changing economy and give customers services that match their buying patterns. They do this by embracing the same technology that brought about the changes in the first place.

Have you ever been to a Crate and Barrel store? This is the place where couples go to register for their wedding gifts. Why? It is easy and the merchandise is right. They just set up their account, pick up a scanner and start zapping bar codes. When they are done, they upload their wish list to their gift registry. Automatically, Crate and Barrel creates a web page for the couple. Emails are then sent to family and friends who go to the site or to the store to view and purchase gifts. Then a box shows up at the couple’s house a few days later. There is no clerk interaction needed and Crate and Barrel brings in hundreds of new customers.

Can you use technology to increase traffic, sales and profitibility? Sure. The key is to make the process is easy for customers and employees.
That’s how innovative retailers increase their return on investment. They seek to implement the latest tools and practices. In the Crate and Barrel example, gross margin dollars and turns are maximized via a social network being created by technology that pulls in extra customers. It also moves merchandise while minimizing costs.

Previous articles in this FURNITURE WORLD Magazine series have covered traditional methods of increasing GMROI (Gross margin dollars per inventory, or turns x (GM%/COGS%). Those methods are not enough anymore! Technology has improved on them. Innovators like Crate and Barrel are maximizing gross margin and turns. This article will highlight some modern ways that you can increase your GMROI.

MODERN Showroom Operations

What do both your customers and salespeople want? They want to find which merchandise works as easy as possible.

An important customer question is, “When can I get it?” Unless the salesperson has a crystal ball, “Duh” sets in. Blank stares, guesses, lies, “I’ll check with my manager”, or “I’ll be right back” are common responses. The customer then waits for the salesperson to get “ballpark” information on available stock levels, incoming orders and vendor lead times. The customer gets cold. The sale becomes less likely as professionalism and trust is compromised. The longer an informed answer takes, the greater the frustration, and the less likely a sale. If customers need to wait 15 minutes to find out when they can get the product, how much do you think they will like it when a standard six to eight week answer is given?

Fortunately, bar coding enables better, faster answers. It builds trust and boosts GMROI.

The reason why bar coding increases GMROI is that in addition to smoothing the sales process, it is the only way an operation with thousands of SKU’s can keep its inventory 100% accurate. The salesperson can speak to the customer with confidence if an item is in stock or on order.

A bar code can be printed on the price tag with almost any POS software. A salesperson now can scan the bar code with a wireless device or PDA. Salespeople and customers can immediately access information on stock levels and incoming purchase orders. There is no excuse for playing the waiting game. And this technology does more. Like the Crate and Barrel gift registry, it allows customers to select the item and immediately add it to their cart. This is happening now, and you can see it in place at select Broyhill stores, Target, and some independent retailers.

Without access to this instant information, you weaken your selling strategy and leave sales on the table. With it, you will see increases in GMROI as both gross margin dollars and turns are increased via better close ratios and average sales, provided by shorter lag times.

MODERN Purchasing Operations

Faxing and phoning PO’s and hand keying acknowledgements are going the way of the dinosaurs.

EDI – Electronic Data Interchange – has been functioning in big retail for years. That is one major reason why conglomerates like Wal-Mart can turn their inventory so fast without a sizable store warehouse. In fact, they turn it so rapidly that their inventory is free, as their financing terms fully cover it. Think Wal-Mart. EDI is now cheap enough that any mom and pop store can get on board.

EDI allows for the automatic sending and receiving of data between various and even unrelated computer systems. It does the job of clerks, a billion times faster. It sends the PO on the retailer side, receives it on the manufacturer side, sends the acknowledgement, order update and invoice on the manufacturer side, and receives it on the retailer side. It also checks for errors.

Small retailers can do this through VAN’s. A VAN is a Value Added Network or a third party translator. It allows for the sending, translation, and receiving of data between different software systems for a transaction fee. It puts business partners in sync with each other.

EDI increases GMROI, because it enables faster, more accurate ordering, while eliminating “busy work” that may, or may not, get done. Because order errors are reported, incorrect shipments are less likely. The result is that your customers and salespeople experience fewer disappointments. Happier customers and faster sales – is that a win-win, or what?

MODERN Receiving Operations

Professional distribution managers don’t allow shipments to “just show up.” When it just “shows up”, your merchandise sits on the dock longer and does not get into your inventory system promptly. In some cases it is missed all together and inaccurate quantities result in your locations.

That’s why recording the receipt of merchandise should be done as close to the delivery as possible.

Retailers, who can receive merchandise quicker, with more accuracy, achieve a higher GMROI, since the merchandise is available for sale faster, the inventory is more accurate, and deliveries and pick ups can be scheduled sooner.

Require your vendors to email advanced shipping notification with a purchase order and item detail. From this, you can print out and organize your bar code labels so that immediate receiving is possible. As merchandise is unloaded, scan and label your merchandise.

As with POS bar coding, affordable solutions are widely available for wireless distribution bar coding. There is zero delay. You know exactly where your merchandise is at all times!

Next issue: The second part of this series will provide more tools and techniques for improving GMROI in your delivery and pickup operations, customer follow-up systems, website and advertising programs.


David McMahon, is a Business Coach for PROFITconsulting. PROFITconsulting assists retailers in increasing GMROI with traditional and modern methods. Questions about the topics covered this article or on any other operations management issue can be sent to David McMahon care of FURNITURE WORLD Magazine at davidm@furninfo.com. Read all of David McMahon’s articles posted to the operations management article archives on the furninfo.com website.


David McMahon is a Certified Management Accountant and Consultant with PROFITconsulting, a Division of PROFITsystems. Questions about this article, or to request a similar analysis on your financial statements contact him at Davidm@furninfo.com or call 8oo-888-5565.

View all articles by David McMahon

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