1.Compare and contrast the ways merchants use retail mathematics formulas to eva
ID: 2335431 • Letter: 1
Question
1.Compare and contrast the ways merchants use retail mathematics formulas to evaluate profitability in their product area.
2. What is the best way for merchants to use retail mathematics to make sure they do not buy too much/too little merchandise?
3. What conclusions can be drawn by comparing competitors' pricing to pricing for the same or comparable items in your department or store?
4. Explain at least two ways in which retail mathematics is used to determine which merchandise is driving the majority of a store's business.
Compose your answers with a minimum of two paragraphs per question (minimum of 8 paragraphs total).
Explanation / Answer
1.
The ways in which retailers use Retail Math formulas to evaluate probability in their prodct area are:
* Acid Test/Liquid Ratio = This ratios tells how quickly assets of a business can be converted into cash to meet its short term obligations making it less risky.
= Current Assets - Inventory/ Current Liabilities
* Breakeven Sales = Sales at which Sales amount equals the Expenses. Every business needs to find its Breakeven point to know its profitability.
= Fixed Cost - Gross Margin
* Gross Margin = Total sales - Cost of goods sold
This is a measure of the profitability of the business.
* Initial Markup = The amount over and above the costs that the retailer wants to earn.
= % over and above the costs and expenses
* Inventory Turnover = It is how many times in a year the whole inventory is sold.
= Net Sales/average stock
* Sales Per Square foot = It is the sales made per square foot area of the place of operation.
= Net Sales/Area
* Reorder Quantity = It is the quantity that should be ordered so that there is no short supply.
2.
The best way for merchants to use retail math to make sure they do not buy too much or too little are to calculate the Reorder Level, Reorder Quantity, Economic Order Quantity.
Reorder Level = It is the level of inventory at which a new order will be placed or put into production. If it fals below reordr level, there might be shortage of supply or there might come a point of time when inventory goes 0.
= Lead Time in Days * Daily Average Usage
Economic Order Quantity = It is the quantity of goods that should be ordered which cost the minimum.
EOQ = (2SD / H)
3.
* Higher prices of same or similar items could drive away the customers from your store and store might loose customers to competitors.
* The store can come out with better competitive strategies before the competitor.
* When our store is having low prices than the competitors, we can always increase the prices a bit in order to meet the prices and this won't affect our customers.
* PRoduct differenciation can always be done and presented in a better way to attaract the customers.
4.
Two ways in which retail mathematics is used to determine which merchandise is driving the majority of a store's business are:
* Inventory Turnover = Today almost all the stores use computerised softwares for billing and inventory management. So inventory turnover can be calculated for different products. IT can be calculated that how fast inventory is moving through the store and the product which has high Invntory turnover is the best performing inventory item.
* Order Quantity per period = Number of orders and quantity ordered can be compared for different items and the one which has the highest number of orders from the store is the best performing item and should be kept in front as it is in huge demand.
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