145:, it is important for the seller to know how much he might expect to gain from it. The GMROII answers the question "for each unit of average inventory held at cost, how many units of currency of gross profit I generated in one year?" GMROII is traditionally calculated by using one year's gross profit against the average of 12 or 13 units of inventory at cost. GMROII may vary depending on which
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141:. It is one way to determine how profitable the seller's inventory is, and describes the relationship between the profit earned from total sales, and the amount invested in the inventory sold. Generally for a seller, the higher the GMROII the better. Since inventory is a very widely ranging factor in a seller's investment in
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When deciding whether to stock jeans in a retail store, it makes more sense for Levi's to sell jeans for $ 100 rather than jeans for $ 10, if they both have the same conventional GMROII. By using the
American Levi's GMROII, you see that the $ 100 jeans deliver 10 times the margin dollars on the space
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Therefore, it is advantageous to use
Average Weekly GMROII which takes time out of the picture. That way, the retailer looks at similar types of numbers regardless of how many weeks are being looked at. The formula is: Average Weekly GMROII = (Profits for the total time period) / (Sum of week ending
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Retailers usually drive their business based on sales or margin. For a retailer whose budgets and bonuses are based on sales, employees often achieve that by lowering the margin or putting too much stock in their stores. A high GMROII indicates a good balance of sales, margin, and inventory cost.
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Financial textbooks often show a formula with a yearly or monthly calculation. When tactical decisions are required for variable time periods, it is helpful for systems to be set up so that GMROII can be analyzed at either the yearly, monthly, or weekly level. Due to the textbook GMROII formula,
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Another shortcoming of GMROII-driven analysis is that items with high sell-offs (i.e. the final stock level falls towards zero) appear better than items with constant inventory supplies. Fashionable items that totally sold off will appear better than basic items such as black socks that are
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189:, GMROII can act as the main driver for retailers to analyze their product and store offering. This metric does not suffer from the major disadvantages some of the other main performance metrics do.
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GMROI has been described as one of the few business measures for which "it is virtually impossible to set a precise goal", and the costs of holding inventory are not taken into account.
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Other formulas that are often given for GMROII are the following (note that all of these are mathematically equivalent because all can be reduced down to Margin/Avg_Inventory_cost):
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replenished by reorders. This is particularly evident when analyzing shorter time periods or item level information rather than higher level (department) information.
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High profit products often have low margin, high volume sales, but also high inventory levels that prevent other products from being displayed and sold
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Note that GMROS can be calculated by multiplying
American Levi's GMROII by Density (Units per square foot). Gross Margin Dollars per Square Foot:
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In the formulas used here, "Margin %" refers to margin as a percent of sales, "Annual
Inventory Turns" refers to COGS / Avg Inventory Cost.
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American Levi's GMROII is a hybrid of GMROII and GMROS (Gross Margin Return On Space) that takes the selling price of an article into account:
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It has been suggested that GMROII is used less often in a manufacturing context because it is difficult to associate
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244:($ 4,000 first two weeks of July profit) / ($ 25,000 average inventory cost) = GMROII of 0.16
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Products or stores with high sales often have lower margin or excessive inventory
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177:. In retail, the measure can be used to assess the performance of an individual
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238:($ 100,000 annual profit) / ($ 25,000 average inventory cost) = GMROII of 4.0
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241:($ 8,000 July profit) / ($ 25,000 average inventory cost) = GMROII of 0.32
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occupied by each pair of jeans in stock, compared to the $ 10 jeans.
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High margin items are often slow sellers and thus produce low profits
399:{\displaystyle (Margin\%/(100\%-Margin\%))*AnnualInventoryTurns}
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depending on the time period, a different result would occur.
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859:{\displaystyle SellingPrice*Margin\%*AnnualInventoryTurns}
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industries, but it is used relatively less frequently in
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Products with a high stock turns often have a low margin
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can vary heavily by item, market segment, location, and
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is being analyzed (e.g. women's apparel, toys, home,
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157:is that a GMROII of typical retailer is above 3.0.
57:. Unsourced material may be challenged and removed.
1024:, archived 23 September 2015, accessed 31 May 2024
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520:{\displaystyle (Margin/COGS)*AnnualInventoryTurns}
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635:{\displaystyle Margin\%*(Sales/AvgInventoryCost)}
1080:, published in 2007, accessed on 19 July 2024
66:"Gross margin return on inventory investment"
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975:{\displaystyle AmericanLevi'sGMROII*Density}
1035:"Measuring up - Retail Benchmarking Survey"
131:Gross Margin Return on Inventory Investment
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117:Learn how and when to remove this message
872:will increase more than 10 times due to
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1040:. PWC. November 2013. Archived from
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719:{\displaystyle SellingPrice*GMROII}
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253:Alternative Formulas for GMROII
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161:GMROII in the retail industry
1020:, Spring 2009, published by
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1022:Babson Executive Education
1078:Saying Goodbye to GMROI
1076:Profit Planning Group,
214:GMROII in manufacturing
1060:Inventory Curve, LLC,
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1106:Description of GMROII
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183:Gross Margin Percent
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49:Please help
44:verification
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1115:Categories
997:References
870:Net Profit
151:sportswear
107:March 2015
77:newspapers
1126:Retailing
1121:Inventory
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18:GMROII
1062:GMROI
1045:(PDF)
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98:JSTOR
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