Ian's Bits & Bobs: The Blog

This is one of those numbers that gets overlooked in the multi-tasking world that is garden retail, where selling products is the main goal. It’s just one more thing to think about and not one that appears to have an “A List” priority, there’s only so much time in a day….

But if you look at companies in construction, health care or other service industries where selling labor is their main goal, those labor hours are front and center in performance metrics.

In garden retail the labor topic usually focuses at the cost of that labor (our Fourth Number) … but now we extend the analysis and comparisons to the amount of that labor, which opens up a whole new business discussion: Productivity.

Happiness is… Rising Productivity

So far in this blog series, and in The 5 Numbers Project (or ‘T5NP‘ for short) we have been focused on Profitability (seeing if we are making more money than other companies, or more than we were making last year.) With this Fifth number, we are looking to see if we are making more money with LESS labor, the biggest single cost of running a retail store. If net profit (aka “bottom line”) rises at the same rate as the cost of doing business, owners and bankers should all be happy, correct?

Well actually no, not happy at all. You’ll hear the word “productivity” a lot from economists and stock analysts as they look for those companies doing more from less. This is often (but not always!) a sign of a progressive company or an economy that is investing in efficiency for the future, rather than living on the current methods or market. The efficiency of a garden retail company is no different. Unless the owners can be sure of being able to constantly raise prices to cover rising costs and make the same bottom line as previous years, they have to make more with less.

Hail to the “Offspring”!

I’m getting ahead of myself here, but the most basic measurement of productivity is one of our “offspring” calculations, called Sales per Labor Hour. (Subscribers to The 5 Numbers Project will spend a lot of time learning more about, working with, and comparing these offspring calculations.) This has nothing to do with the cost of those hours (see Labor Costs post) and has everything to do with the end product of all those hours used, the sales volume.

(Yes – The answers in general retail companies will be all over the map depending on the type of store and business model. Obviously, a warehouse club will have a huge Sales per Labor Hour metric compared to an urban boutique nursery. Even within full-service garden retail, a company that sells a lot of big ticket items like patio or specimen trees will have a much higher number than one that sells mostly small items like annuals or veggies.)

And while it’s fascinating to think about how you compare to others … the most important thing is how YOU are doing compared to yourself over time. Not just “May 2019 vs. May 2018” — but YTD 2019 vs. 2018. I firmly believe that measuring The 5 Numbers — and their “offspring” calculations – will help you have a better picture of your profitability.

What’s the POINT of all of this “T5NP”?

If you can MEASURE it, you can IMPROVE it.

That’s it, in a nutshell. Over the past 5 weeks, this blog has offered a (not-so) brief overview into the philosophy behind each of The 5 Numbers that our successful clients have been using for years to “beat the street.”

As you’ve already guessed — it’s these 5 Numbers:  Sales Volume, Customer Count, Gross Margin Dollars, Labor Dollars, and now Labor Hours form the foundation of our new national online benchmarking initiative for garden retail, launching this month.

A few quick details on the Project (you can learn more by clicking here too):

• Subscriptions are available ONLY to garden retailers – but any retailer can join, regardless of any other peer/buying group affiliation. All welcome!
• The data will be dynamically filterable by business size and geographic region – though your business NAME remains completely anonymous.
• There’s an onboarding fee ($849) to build your private company dashboard with a year of historical data as your baseline) and then a monthly subscription fee ($149) to enable you to see your live comparisons – to yourself in the previous year, and to your peers.
• This isn’t “just us” — this project is being managed by Your MarketMetrics (a team led by a familiar name to some from the old ANLA days – Kellee (Magee) O’Reilly.)  Your MarketMetrics launched a companion benchmarking initiative for nursery & greenhouse earlier this year, which is managed by Dr. Charlie Hall.

SO:  If you’re intrigued about how it works … and what you get when you subscribe, register to join us for a free preview webinar on FRIDAY December 7 at 3pm Eastern time (noon Pacific). The webinar will be recorded if you can’t join live, but you need to register to be able to view it.  CLICK HERE  to RSVP to attend the webinar, and take the first step toward more profitability with less stress … by tracking just 5 Numbers!

As you know already, the Gross Margin is the difference between the actual received price the retailer paid for an item and the actual sale amount received from the customer. It’s the sale of the goods, minus the cost of the goods (the “profit margin” on the sale).

As I have said before: many managers and owners track and discuss their sales dollars, but not that many would openly discuss their results in Gross Margin Dollars with other companies, even those a thousand miles away. Maybe that’s because this metric is indeed a measure of retail competence, such as negotiating the best delivered terms, understanding your market and the pricing strategies it responds to and so on. Many managers do track the GM percentage – but it’s GM dollars that pay the bills, so we see the more successful ones tracking both % and GM dollars – with actions and decisions based on the change in dollars not the percentage.

Core Values

Buying and selling is the core of retail. So the main result of that activity, GM dollars, is surely something to track and compare with previous years… and with one’s peers. Think of all the actions, tasks, decisions, follow-ups, administration, customer contacts, etc. carried out by the retail team each day that end up in the GM dollars column… From agreeing upon a delivered price with a supplier, to accurate receiving and pricing, through impulsive merchandising and signage, to accurate register skills and efficient delivery: company profitability is on the line.

The dollar difference between buying (inventory) costs and the final sales dollars, i.e. the “margin,” is what pays for everything else in the company and makes a profit to continue the company. This is the ONLY retail step that actually creates wealth, adds value. Some experts say that investing in inventory is the only creative investment that actually grows the company. All other activities and investments are just defensive to try to hold that wealth.

It’s such a basic concept that sometimes we almost forget. Every plant that dies or is discounted, every “incredible!” item brought in that is still sitting there being dusted and moved every season, every overlooked freight charge and every under-budgeted cost of that inventory, reduces those margin dollars. The difference between planned or budgeted GM percentage and the actual figure after inventory adjustments can be as much as 5-6% of total sales (twice the ad budget!). When you show that difference as actual margin dollars, you might want to sit down first.

Margin Matters

The GM dollars metric is an essential one for comparing the profit returned from the cost of goods invested in the various products and can be found with a click of your POS system under “GMROI”.

But until you know the growth or decline in GM dollars for the current year, you can’t (or shouldn’t) decide how much labor you can afford to bring in to service and sell the inventory next year. Unless you look at the trends in GM dollars in your company (and in the industry) you may not know which products are worth investing in and which are worth leaving alone.

So, yes Gross Margin dollars are something we are really going to get down to, watch like a hawk and talk about, a lot. Let’s talk about your GM dollar changes up or down within a department or a category. Let’s look at GM dollars for a certain category and then look at how much space or labor that category uses to get that result, hmmm… Let’s compare GM dollars earned from competing vendors (ooh, that’s powerful!) or from different buyers at their annual review time… Never a dull moment in the GM dollars world!

As retailing gets more and more competitive, the progressive garden retailers are constantly searching for best use of their inventory money to create the GM dollars, so going forward let’s focus on the only investment that creates wealth – who’s in?

*T5NP is The 5 Numbers Project: a new national benchmarking initiative for independent garden retailers. Subscriptions are open to ANY garden retailer, regardless of other buying/peer group or membership affiliations. Available now through December 23, 2018: learn more by clicking here.