June 19, 2022

Evolution of New Items - The GPA

Allow me to introduce a new metric for you ... the GPA or "Grade Point Average".

This metric is just like the old-school GPA you enjoyed in school. If an item (on a monthly basis) is in the top 20% of total sales (rank-ordered from highest selling item to lowest selling item), the item is an "A" ... next 20% of sales is a "B" ... next 20% of sales is a "C" ... next 20% of sales is a "D" ... and the bottom 20% of sales is an "F". This isn't an even distribution of items, because it could be that one item accounts for 20% of sales and the bottom 60% of items account for 20% of sales.

Then, we compute a GPA or "Grade Point Average" ... "A" sales are multiplied by 4, "B" sales are multiplied by 3, "C" sales are multiplied by 2, "D" sales are multiplied by 1, and "F" sales are multiplied by 0. Divide that total by total sales and you have a GPA, or Grade Point Average between 0 and 4, with 2 being "average".

Why go through this nonsense?

The GPA allows us to see how items evolve over time. If items are performing better, the GPA will increase. If items are performing poorly, the GPA will decrease. If sales decrease but the GPA increases, then the merchandising team is culling out the losers and focusing on the winning items.

Let's look at items introduced in February 2019. Sales in each subsequent month are outlined in the table, as well as the GPA for items in that month.

Notice the seasonality in sales ... March/April/May are peak sales months for these items. The items build into healthy sales status through the remainder of 2019. Then in 2020 the items begin to slump, and the slump significant in 2021 with the notable exception of the March/April/May timeframe where the GPA's increase.

Let's look at March/April/May performance.

Two years after the items were introduced sales are cut in half, but the GPA is noticeably higher.

In other words, the merchandising team (predictably) culled out the losing items, focusing only on the items that have success.

This is standard behavior ... of course.

But it brings up an interesting thought. If sales continue to decline from items from the Class of February 2019, you need new items to replace the sales being lost, correct?

The best companies I work with are gifted at constantly introducing new items that sell well enough to replace the items that are always dying off.

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