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Chapter 6 examines the financial strategy associated with the market strategy. The following will be discussed in this chapter: Retailing strategy, retailer objectives, financial tradeoff made by retailers to increase ROI, the strategic profit model, components of the strategic profit model,...
Stores: $350,000 $700,000 GiftstoGo.com $220,000 $440,000 = 50% = 50% 626 Operating Expense Percent Operating Expenses Net Sales Stores: = Operating Expenses % $250,000 $700,000 GiftstoGo.com: $150,000 $440,000 = 35.7% 34.1% 627 Net Profit Percentage Net Profit = Net Profit Percentage Net Sales Stores: $ 59,800 $700,000 = 8.5% GiftstoGo.com: $ 45,500 $440,000 = 10.3% 628 629 Balance Sheet Information for Gifts to Go and Proposed Internet Channel Inventory Turnover Cost of Goods = Average Inventory Inventory Turnover Stores: $350,000 $175,000 = 2.0 GiftstoGo.com: $220,000 $ 70,000 = 3.1 630 Asset Turnover Net Sales = Total Assets Stores: Asset Turnover $700,000 $380,000 GiftstoGo.com: $440,000 $211,000 = 1.84 = 2.09 631 Return on Assets 632 Net Profit Margin x Asset Turnover = Return on Assets Stores: 8.54 Giststgo.com 10.3 x x 1.84 2.09 = 15.7% = 21.3% 633 The Strategic Profit Model Net Sales Cost of goods sold Gross margin Variable expenses + Fixed expenses Total expenses Profit Management Net profit Net profit margin Net Sales x Inventory Net sales + Accounts receivable Total current assets + + Other current assets Fixed assets Return on assets Asset turnover Total assets Asset Management Productivity Measures Input Measures – assess the amount of resources or money used by the retailer to achieve outputs such as sales Output measures – asses the results of a retailer’s investment decisions Productivity measure – determines how effectively retailers use their resource – what return they get on their investments 634 Setting and Measuring Performance Objectives Retailers will be better able to gauge performance if it has specific objectives in mind to compare performance Should include: • numerical index of performance desired • time frame for performance • necessary resources to achieve objectives 635 ... compared to its competitors 64 5 Sources of Information 64 6 • Balance Sheet (Snap Shot at One Time) – Asset Management • Income Statement (Summary Over Time) – Margin Management • Annual Reports/... objectives 63 5 63 6 Setting Objectives in Large Retail Organizations Top Down Planning Corporate Developmental Strategy Category, Departments and sales associates implement strategy 63 7 Setting... $440,000 = 35.7% 34.1% 62 7 Net Profit Percentage Net Profit = Net Profit Percentage Net Sales Stores: $ 59,800 $700,000 = 8.5% GiftstoGo.com: $ 45,500 $440,000 = 10.3% 62 8 62 9 Balance Sheet Information