Two key concepts are fundamental to all retail management: turnover and stock-to-sales ratio.
Basic retail management concepts can help spa retail professionals improve their inventory management methodology by implementing the basic techniques of min and max order levels and keeping the stock-to-sales ratios within industry standards. This will certainly improve their retail effectiveness but it does have limitations in terms of how precisely it can hold the operation to its retail plan.
An important step in monitoring the retail plan requires posting to the planning format each month’s actual sales, markdowns, and other activity.
Simply stated, shrinkage is the difference between the inventory the spa has on hand and what it should have on hand. In the retail industry, an estimated 1.54 per cent of annual sales losses are due to inventory shrinkage. According to the 2004 National Retail Security Survey, specialty apparel is the category with the highest shrinkage, at 2.93 percent, while department stores run around 1.51 percent. But where is the merchandise going? Losses break down as follows: 47 percent internal/employee theft, 34 percent shoplifting, 14 percent paperwork errors, and 5 percent vendor fraud.
At the Urban Spa …
Reuben, the manager of the Urban Spa, hung up the phone in frustration. Fiona Matthews, the owner of the Urban Spa, a day spa and salon, was demanding that Reuben explain why the cost of goods sold in April was 56.5 percent when it was budgeted to be 50 percent.
All of the information needed for ﬁnancial evaluation can be found on the retail department schedule in Exhibit 1. This departmental schedule covers revenue, adjustments, cost of goods sold, gross margin, direct expenses, and the ﬁnal income/loss departmental contribution. This is a generic schedule designed to ﬁt all spas; individual spas will have modiﬁed schedules to meet their own needs and requirements. Several of these items are evaluated monthly.
Some spas with signiﬁcant retail revenue will want to monitor retail sales by classiﬁcation as compared to plan. This information is valuable as it can aid spa professionals in…
Another way to evaluate the retail sales of a spa operation is to compare retail sales to the number of tickets posted during the month.
The most common measurement of spa retail is retail sales per treatment by therapist.
Markdowns and retail discounts are two factors that affect the cost of sales. Discounts are strategic decisions made by management.