I had a jeweler email me a question about GMROI, thought I'd share, has an interest tidbit about WATCHES.
GMROI is a combination of 3 numbers
Gross profit dollars for the year + average inventory level + turn
Get keystone on the sales AND keep inventory level equal to profits AND sell this stuff once a year (turn of 1) and your GMROI will be $1.00. Change any of a single number or all 3 and GMROI will go up or down.
Aged inventory makes it go down.(too much inventory)
HIGH profits can make it go up
Sell the stuff like hotcakes (turn faster than 1) and GMROI will go UP even if profit margins are low.
In managing inventory the most important thing to remember is Over All inventory level in the store for sure and in each category should be "about" equal to the gross profit for a year. This can vary depending upon profit margins. As an example there are some law in the universe that "mostly control" GMROI
One is WATCHES
Because watches has a lower margin (the factory puts a tag in the box for retail and it is LOWER than keystone) you can't get keystone and because most jewelers just don't market and sell them well the TURN is lower than once a year and therefore inventory level is too high and watches "usually" have a GMROI of less than a $1.00. Usually nothing you can do about it. So another category must do better than watches to help the store have a GMROI better than "1"
Typical GMROI on watches runs about .75 to $1.40 and it's just a fact of life.
I've seen jewelers selling Rolex can have a .35 GMROI on ladies watches and .85 on men's. Not great at all but if the rest of the store does well then what Rolex does is to just throw (example) $100,000 in cash to the bottom line in ross profit dollars. But other departments will have to be great performers because the store will need that money to help pay the accounts payables on Rolex.
It's also a prestige marketing tool for the store. You will have a hard time most times just having a watch store, there are just a few exceptions.
There used to be an exception watch store based in New York:
Just watches and they have stores across the country. The owners are trying to sell now. In their heyday I'm sure they did well but today with Millennials not being watch collectors or buying expensive watches I'm sure their sales are off and their inventory levels are too high (because watch manufacturer dedicates how many you must stock-not your choice) that their GMROI is LOW and a low turn and a low profit margin and therefore they have much debt.
You can read about this delima for them at:
This one line in the report tells it all:
“The market is much more unforgiving today for under performers or brands losing money,” she said.
Hope that helps
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