Inventory Turns

Inventory turnover is a critical metric in determining a retailer’s inventory efficiency and sales effectiveness. For apparel, footwear and accessory retailers, it’s especially important to adapt to constantly changing trends and styles to avoid the costs associated with storing excess inventory and offering steep discounts at the end of a season. A higher merchandise turnover indicates more sales in a given period, resulting in lower storage costs and more effective purchasing and manufacturing.

  • < 3.2
  • 3.2
  • 4.3
  • > 4.3
49% prefer purchasing clothes in-store. Source: Finlistics
"Consumers are expected to spend $2.9 trillion on cross-border ecommerce by 2022."

To read more, check out this article
Source: McKinsey

Stock-outs as a % of Sales

When customers are faced with a stock-out situation, they either purchase items from another store, delay their purchase, replace the item with another one, perhaps even from a different brand, or not purchase the item at all. In addition to lost sales, the result is a frustrating experience for your customers. In the apparel, footwear & accessory industry, customer experience is critical, and therefore identifying and supplying the optimal amount of merchandise to reduce costly stock-outs is essential.

  • > 2.5%
  • 2.5%
  • 1.8%
  • 1%

Labor as a % of Sales

Labor is one of the biggest expenses a retailer manages. In fact, in many cases labor costs more than the inventory the store is carrying. Retailers require resources to cover the floor and work with customers from open until close, receive shipments, stock shelves, work the registers and maintain accurate inventory counts. A good staff is critical to the success of an apparel, footwear & accessories business, however it’s critical to use payroll funds wisely to remain profitable. Labor as a percentage of sales is a great indicator of staffing efficiency. A percentage that is too high indicates that you may be overstaffing given the amount of sales your stores are generating.

  • > 23.5%
  • 23.5%
  • 19.8%
  • 16%
Foundational
Competitive
Best in class
Transformative

Gross Profit
Margin

< 55%

55%

58%

> 58%

Gross Profit
Margin

Percentage of revenue after cost of goods sold. For an apparel, footwear & accessory company cost of goods sold includes fixed costs such as rent, utilities and salaried workers, and variable costs that are dependent upon the amount of materials being produced. Higher is better.

Stock-outs as a %
of Sales

> 2.5%

2.5%

1.8%

1%

Stock-outs as a %
of Sales

The cost of lost sales can be calculated by days a SKU is out of stock multiplied by the average or expected daily sales. This metric indicates what percent of sales goes towards the cost of stock-outs. The lower this percentage is, the less impact your stock-outs have on your business.

Labor as a %
of Sales

> 23.5%

23.5%

19.8%

16%

Labor as a %
of Sales

The percentage of sales that goes toward labor costs. If this percentage is too high, your company should adjust the cost of labor or the price of the product to increase profits.

Revenue Per
Employee

< $126

$241

$260

> $370

Revenue Per
Employee

This metric is a rough measure of how much revenue each employee generates for your company. A higher revenue per employee indicates higher productivity and effective use of your company’s resources.

Supply Chain
Costs as a % of
Sales

> 3.3%

3.3%

3%

< 3%

Supply Chain
Costs as a % of
Sales

Percentage of sales that goes towards the cost of production and distribution of goods. A reduction in supply chain costs will increase net profits without having to increase sales. The lower this percentage, the better.

Marketing as a %
of Revenue

> 3.9%

3.9%

3.3%

2.6%

Marketing as a %
of Revenue

Marketing is one of the largest expenses for apparel, footwear and accessories retailers. Smart use of marketing dollars results in more efficiency and higher profit margins.

Inventory Turns

< 3.2

3.2

4.3

> 4.3

Inventory Turns

Ratio showing how many times inventory is sold and replaced over a period of time. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. A low turnover ratio signifies weak sales and excess inventory. A high ratio suggests either strong sales or large discounts.

SG&A as a %
of Revenue

43.9%

31.1%

24.6%

18.1%

SG&A as a %
of Revenue

The percentage of sales that goes towards General & Administrative costs. This metric is an indicator of efficient operations. The lower this percentage, the better.

IT Costs as a %
of Revenue

> 2.1%

2.1%

1.6%

1.2%

IT Costs as a %
of Revenue

Dollar amount spent on IT infrastructure and IT teams as compared to total sales. A lower percentage indicates higher IT efficiency.

Source(s): APQC, WERC, IR 500, Finlistics

Parameters

Foundational

Your business may just be beginning to track this metric, perform this business function or identified this as a problem. Improved execution in this area should be a high priority.

Competitive

Your business is competitive in this area, but there’s still room for advancement. Consider investments to improve related operations to achieve better results.

Best in Class

Your performance in this area is considered best in class and is superior to the average company in your sector. You’ve laid a solid foundation in this business function, and the next step is optimization.

Transformative

You’re achieving the optimal results for this metric. Your business processes in this area are highly efficient and stand out against competitors. Keep investing in this area to maintain these results.