Digging Deeper Into Your Margin Performance

Digging Deeper Into Your Margin Performance

by Matt Pruitt

As a retailer, you know that keeping track of your margins is a critical way of measuring performance. Your margin tells you how much profit you are averaging per sale in each class, but if you are just looking at your top-line margin numbers, you may not have enough information to make smart buying decisions.

For instance, say your margin in outerwear is 55%. That sounds good, but if you dig deeper into the subclass level (the categories that make up that classification, such as jackets, trench coats and rain gear) you may see a different picture. It could be that trench coats are trending, and giving you a margin of 60%, while rain gear is underperforming. That’s why at Blacks we recommend that our clients track their margin at the subclass level, especially if they are dealing in large-volume sales.

For clients who emphasize brands, we recommend looking at each vendor at the subclass level on a regular basis. So, instead of just looking at the top-line margin for “Brand X”, we calculate Brand X’s margin in tops, pants, accessories, shoes, etc. This gives buyers the critical information they need when they go to market. They may know that Brand X is in demand, but they also know that their highest margins come from a few subclasses. This allows them to fine tune their buys knowing that they can hit a healthy margin. This also leads to less carryover and fewer returns.

While we know that this is a smart way to do business, we also realize that calculating margin at the subclass level involves a good bit of work. Some POS systems may not report subclass performance numbers, so you may need an analyst to make these calculations. That’s why measuring subclass performance has become a critical Blacks service. We realize that most retailers do not have the information and bandwidth they need to make these calculations, even though they can make a substantial difference to their bottom line.

If you are interested in improving your gross margin by making smarter buys, we’d be happy to talk to you about adding subclass analysis to your inventory planning services. But just know that follow-up is key. We can give you the information to improve your business, but you have to be committed to using it.

For more information, contact Matt Pruitt at matt@blksretail.com or call (781) 325-6751.

Matt Pruitt is a retail consultant and data analyst at Blacks Retail. His expertise in vendor performance, point-of-sale analytics, and growth strategies has helped clients achieve and exceed their goals. He studied Business Management and Philosophy at the University of Massachusetts, Boston.