RETAIL MATH FORMULAS

RETAIL MATH FORMULAS

The purpose of the retail math assignment is to prepare you for the merchandising decisions you will be required to learn and apply throughout your internship program. A thorough understanding of the retailing mathematics is essential for the successful completion of your training program. The following problems are intended to give you a better idea of the type of math you will be applying as part of your retailing internship. An understanding of these types of problems will give you the edge you will need in order to succeed in the company. Retail math formulas have been provided to guide you in working through these problems. NOTE: Some retailers will provide you with their own training in retail mathematics. This section will help you prepare for that part of their training program.

MARKUP Markup is the difference between the cost of an item and the retail or selling price of the item. Markup can be expressed in dollars and cents or as a percentage. This is the amount added to the cost of goods to arrive at a selling price. Cost Markup Selling Price (retail) $5.50 $4.45 $9.95

Most retailers base the markup percent on retail, not cost. Markup percent = $4.45 = .447 or 44.7% $9.95 Basic Formula: RETAIL - COST X 100 = Markup RETAIL Therefore, an item that retails for $79.95, with a cost of $45.00 has a markup percent of: $79.95 - $45.00 = $34.95 = .437 = 43.7% $79.95 $79.95

MARKDOWN Markdown is a familiar term. Reducing the retail price of an item is taking a "markdown" on that item. It can be stated in dollars and cents, or as a percentage. Basic Formula: ORIGINAL RETAIL - NEW RETAIL X 100 = Markdown % ORIGINAL RETAIL For example, a shirt that had an original retail of $12.00, and was marked down to $9.00, had a markdown percent of: $12.00 - $9.00 = $ 3.00 = .25 = 25% 12.00 $12.00 Sometimes markdowns are figured as a percentage to total merchandise sales. Suppose you receive 100 sweaters. Let us say that their retail was $20.00 each. Assume that you sold 87 of them at full retail. However, 13 did not sell. Therefore, you decided to mark them down to $13.88. The customers bought all 13 sweaters at $13.88. Therefore, our markdown percent to total sales is calculated in this way: 87 sweaters X $20.00 = $1,740.00 13 sweaters X 13.88 = $ 180.44 Total Sales = $1,920.44 Total markdowns equal ($20.00 - $13.88) X 13 Sweaters or $6.12 X 13 = $79.56 The markdown percent to total sales is calculated as: $79.56 = .041 = 4.1% $1,920.44 TURNOVER Turnover means the amount of times the average inventory sells in a given period of time - usually one year. Basic Formula: ANNUAL SALES = TURNOVER AVERAGE INVENTORY 3

To figure turnover on an annual basis, you add up the beginning dollar inventory and the dollar inventory at the end of each month. Then divide this answer by 13 to determine your average inventory. The next step is to divide your total annual sales by this average inventory. For example, a baker tries to achieve a turnover of 365 each year. Customers will not buy stale bread so the baker must bake fresh bread each night and try to sell it all the next day. So, the average inventory sells, or "turns over" each day of the year. Obviously most retailers expect a much lower turnover than the baker. A high fashion item like women's dresses must achieve a higher rate of turnover than does luggage or fine jewelry. You can also compute "planned" turnover using the same formula and substituting a "planned" sales figure for annual sales . FINDING CLOSING INVENTORY: Gross sales - Customer returns & allowances = Net sales BOM + Purchase + Additional markup + markdown cancellations + transfers in = Total goods handled Net sales + Markdowns + Employee discount + Shortage + Transfers + Claims - Markup cancellations = Total retail reductions Basic Closing Inventory Formula: Total goods handled - Total retail reductions = Closing inventory Finding dollars & Percent Overage/Shortage: Physical inventory - Book inventory = $ Overage/Shortage $ Overage/shortage / Cumulative net sales = % PERCENT GAIN OR LOSS Retailers are constantly checking out sales performance this year to last year both year-to-date and monthly. They need to know how they are doing. Is there a gain or a loss? What is it? Overage/Shortage

Basic Formulas: % GAIN This year's actual period sales - last year's period sales X 100 Last year's period sales
% LOSS

Last year's period sales - This year's actual period sales X 100 Last year's period sales STOCK TO SALES RATIO This is an expression of turnover which can be calculated on a monthly basis at the end of the month. It is figured by taking the dollars (or units) on-hand at the beginning of a period divided by the actual dollar sales for that period. Basic Formula: Dollars on-hand at beginning of period X 100 = Stock to Sales Ratio Sales for the period To arrive at planned stock to sales ratio, divide inventory allowance by sales estimate for the period. Units on-hand at beginning of period X 100 = Stock to Sales Ratio Unit sales for the period GROSS MARGIN Gross margin is the difference between sales and the cost of merchandise sold. It can be expressed in terms of a percent or in dollars. The goal in merchandising is to maximize gross margins through sound merchandise decisions relating to markups and markdowns. For example, if markdowns increase and markup decreases or remains constant with sales, gross margin will decrease.

Basic Formula: Markup % - Markdown % Reduced to Cost = Gross Margin % For example: Given MU% of 40.5% Given MD% of 4.1% Reducing MD% to cost we must first find the reciprocal of the MU%. Then we multiply the reciprocal times to MD% to get the MD% at cost: Convert MU% to decimal = .405 Subtract .405 from 1.00 to find the reciprocal = .595 .595 X .041 = .024 of 2.40% MD at cost Therefore: Gross margin % = 40.5 - 2.4 = 38.1% If sales are $894,689, then GM $ are: GM $ = Sales X GM% = $894,689 X 38.1% = $340,876

DOLLAR PROFIT AND LOSS STATEMENT Basic Formula: Net Sales - Cost of goods sold + Cash discount = Gross Margin Gross Margin - Operating Expenses = Operating Profit or Loss SALES PRODUCTIVITY A primary objective for store managers is to increase productivity of their sales staff. To find out how specific salespeople are performing managers will review them in a number of different ways, most typically through sales per hour (SPH), units per transaction (UPT), average sale, and selling cost. These figures are compared to the store/dept average to see how the salesperson's performance compares.

Basic Formula: SPH = # Sales # Hours UPT = #Units # Transactions # Sales # Transactions

Average Sale =

Selling Cost = *Salary (hourly X # hours) $ Sales * expressed as a %

SPECIAL NOTE: Retailers often take a short cut when dealing with numbers. Since so many numbers are large, retailers abbreviate the numbers as follows: replace the comma between the thousands and the hundred location with a decimal point to express the number. Therefore $75,000.00 is expressed as $75.0; $35,500.00 is expressed as $35.5; $1,500,000.00 is expressed as $1,500.0 and so forth.