Twitter icon
Facebook icon
LinkedIn icon
Pinterest icon

How Can A Retail ERP System Help To Optimize Profit Margins?

Image showing business man with laptop and increasing chart behind him

A retail ERP system can help retailers optimize profit margins by providing measurable data to analyze and use in managing costs. This is important in an ever-changing retail environment.

In order to make the best analysis, the data from a retail ERP system must reflect your business, which means information entered into the system needs to be accurate and complete. By having measurable information about your operations readily available, you’ll better understand what the numbers mean. For example, to measure the true profitability of your operations, you will need to capture all costs associated with an item. This includes detailed overhead costs such as the amount of shelf or floor space a product occupies, the salaries of your floor stockers and the time it takes for them to restock each item. Capturing this much detail about every item you sell would be no small task, to be sure.

Even though it’s possible to drill down to that level detail with current ERP systems, it’s a tedious and time-consuming task to enter in so much information about your ever-changing operations. Rarely do retailers have the staff or time to dedicate to such a task. Instead, most retailers find it more valuable to determine gross margin, which is simply the difference between sales revenue and the cost of goods. This often eliminates the need to break down overhead costs into minute details. As long as a percentage of the profit is above a certain amount, you will be covering your overhead costs.

But as mobile inventory systems become more commonplace, they may bring with them better capabilities to determine true profitability. For example, mobile systems could allow you to figure out, in detail, how much time your employees are spending restocking shelves. Even with these systems, though, it may be difficult to capture data such as the amount of space a product occupies, simply because shelving configurations and shelved items often change.

Still, new technologies could soon help retailers make better use of their space, for instance, by allowing for a model where more stores have display-only items that shoppers use to make buying decisions, but then the actual product is delivered to the customer’s home or office after purchase. This “look-and-order” shopping model versus the popular “cash-and-carry” model should be driven largely by your customers’ expectations, and involves the majority of items being sent out from a central warehouse.

In the look-and-order model, shipping costs need to be built into the margins to allow for competitive pricing. Still, discounting for shipping may be offset by savings in other areas, including carrying costs for maintaining less inventory, logistics costs from moving merchandise between warehouses and stores, and salaries from a need for fewer personnel to keep shelves stocked. A retail ERP system would be essential in helping to keep track of all this information.

While the look-and-order model likely won’t work for all types of products, such as groceries or certain clothing items, customers are often accustomed to waiting for big-ticket items, like large appliances, to be delivered a day or more later.

Even with advances in retail ERP and inventory systems, the reality of a changing shopping model is more likely to be something we’re already seeing. Rather than pure cash-and-carry or look-and-order stores, most omni-channel retailers are already using or are developing a hybrid model, offering some items in store while other items are display only.

At the end of the day, the type of model best fit for your retail operations comes down to knowing your customer base. A retail ERP system is able to help you compile the information you need to analyze your operations and determine the ideal way to be profitable in the changing retail environment.

Author: Wm. Matthew Street, Solutions Consultant/Retail Product Lead at ArcherPoint

To learn more about optimizing your profit margins, schedule a demo of ArcherPoint's Retail Management Solutions.