NOTES & CENTS I BY AMANDA RUETER Real Strategies to Improve GMROI
I f you want to know how efficiently your inventory is working for you, look no further than GMROI, or Gross Margin Return on Investment. This key retail metric tells you how many dollars of gross profit you’re making for every dollar you’ve invested in inventory. For music store owners and managers, it’s one of the clearest indicators of how well your product selection, pricing and inventory control are performing. GMROI is often misunderstood as simply being about how fast you sell product, i.e. turnover. But the truth is, it’s a balancing act involving three critical levers: carrying less inventory, selling more inventory and selling inventory more profitably. Improve
chandising and training. Feature best-sellers and high-margin items prominently. Rotate displays and use targeted promotions to move aged inventory — not your newest stock. Train your team to recom- mend accessories, upgrades and complementary items. These add- ons increase average transaction size and help inventory turn faster. SELL MORE, PROFITABLY Improving margin comes from sourcing smarter and selling smarter. Look at your vendor re- lationships. Can you consolidate purchases for better terms? Are there private label or house brands that offer better margins? Then look to your sales team. Are they equipped to sell value over price? Focus on the benefits of buying local, expert advice and personal- ized service. Bundle in setups or extended warranties — and price those services accordingly. Improving GMROI isn’t about squeezing one lever un- til it breaks. It’s about balance. Even small changes — trimming dead stock, refining your buys and training your team — can lead to real gains in profitability. Start by identifying which le- ver is weakest. Is inventory sitting too long? Are margins thinner than expected? Are products flying off the shelves, but profit isn’t following? Then implement one targeted change and measure the results. When you get the balance right, GMROI becomes more than just a metric — it becomes a reflection of a healthy, profit- focused retail operation. MI
any one of those, and your GMROI goes up. But the challenge? Changing one often impacts the others. The formula for GMROI is simple: GMROI equals Gross Margin/Average Inventory Cost. It measures the return you generate for each dollar tied up in inventory. The higher your GMROI, the better, because it means you’re generating more gross profit per dollar of inventory investment. A low GMROI doesn’t automatically mean you’re losing money, but it can signal inefficiencies in your buying process, pricing strategy or sales execution. Excess inventory, low-margin products or sluggish sell-through can all drag the metric down. To improve GMROI, you need to either reduce how much inventory you carry, sell more inventory or increase your margins. The trick is optimizing these
levers together — not maximizing just one. Let’s say you improve GMROI by reduc- ing inventory levels. Less inventory means a lower denominator in the GMROI equation, but go too far, and you risk stocking out on popular items. Want to raise prices to boost margin? That works if customers still buy. But if higher prices slow your turns, your gains evaporate. That’s the GMROI dance. One lever moves, and the other two shift with it. Here are some
“Improving GMROI isn’t about squeezing one lever until it breaks. It’s about balance.”
real-world strategies to improve GMROI:
CARRY LESS INVENTORY Don’t slash inventory across the board. Use sales data to identify slow movers and reduce their footprint. Invest more in fast-turning, high-margin items with predictable demand. Avoid overbuying based on gut feeling or vendor pressure. Use open-to-buy plans and historical sales data to guide your purchasing. SELL MORE, FASTER Improve turnover without sacrificing margin through strong mer-
Amanda Rueter is the president of Ernie Williamson Music and an experienced vice president of finance.
24 I MUSIC INC. I MAY 2025
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