Merchandise Planning Problems

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Case 3: Merchandise Planning Problems 1. What is Susie's Casuals' inventory turnover? Inventory turnover = Sales at retail/Average inventory at retail = 10/8.5 = 1.18 2. What is the inventory turnover of a pet shop chain with annual sales of 10 million, average inventory at cost of 3 million, and a gross margin of 40%? Inventory turnover = (Sales at cost/average inventory at cost)(100% – Gross margin %) = (10,000,000/3,000,000)(1– 0.40)= 3.3 x 0.60= 1.98 3. What is the GMROI for each of the following merchandise categories in a bookstore? Category | Textbooks | General Reading | Reference Books | Newspapers,Magazines | Annual Sales | $800,000 | $450,000 | $600,000 | $100,000 | Average Inventory (at cost) | $70,000 | $110,000 | $250,000 | $10,000 | Gross Margin % | 10% | 25% | 40% | 12% | Inventory turnover | 10.29 | 3.07 | 1.44 | 8.8 | GMROI | 114.3% | 102.27% | 96% | 120% | Which of these categories is most profitable for the bookstore? Should the bookstore eliminate the least profitable category? The most profitable category is the "textbooks", which the second GMROI. For $1 invested they receive $1.14. Nevertheless highest inventory turnover, that means that they sales volume is higher than in other categories, and also the total annual sales of the category. Therefore, instead of not being the category with a higher GMROI, it has the best inventory turnover and the highest annual sales, which make the category more profitable than the others. The least profitable category is the "reference books", with less than 100% of GMROI. That means that for each $1 invested, the bookstore just receive 0.96$. However they should eliminate that

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