When I started my career in Fashion Buying I quickly understood that the products and numbers work hand in hand – this is where the magic happens. Positive sales figures are proof that you are making strong commercial business decisions and applying a successful buying strategy.
Understanding and using retail formulas and metrics is non-negotiable for any fashion buyer who wants to make informed, data-driven decisions. These metrics aren’t just numbers on a spreadsheet; they are critical insights that can optimize inventory, drive profitability, and ensure your business runs efficiently.
Here are some of the ones I use most frequently to assess the successful sales ( or not !) of my products. I will share the metrics you will come across in a buying office, what each metric is, where to use and apply it and give you some practical examples. When using metrics to assess product performance it is important to measure against a specific timeframe . Any comparison should be like-for-like. That means compare apples with apples !!! otherwise you will not have a true or accurate picture on which to make an informed decision.
1. Sell-Through Rate
First up is Sell-Through Rate and this measures how quickly products sell once they hit the shelves. It’s a straightforward but powerful metric that shows if inventory is moving as expected or getting stuck.
Calculating this requires setting a clear timeframe, whether a week or a month, and benchmarking against your sales plan.
Formula:
Sell-Through Rate (%) = (Units Sold / Units Received) x 100
Example: Suppose you’re buying for a women’s fashion brand and order 1,000 units of a new floral summer dress. Within the first month, 600 units sell. Your sell-through rate is: (600 / 1,000) x 100 = 60%
A 60% sell-through rate is strong, signaling that the product resonates with customers. In response, you could decide to reorder or amplify the product’s visibility with a marketing campaign. On the other hand, if the sell-through rate is only 20%, it’s time to consider options like markdowns, relocating inventory, or changing visual merchandising.
Tip: Establish weekly or monthly sell-through targets and review them consistently. Quick, strategic actions can minimize losses when products don’t perform as expected.
2. Gross Margin Return on Investment (GMROI)
GMROI is a profitability metric that helps you understand how much profit your inventory investments are generating. It answers a vital question: Are your investments in stock making money?
Formula:
GMROI = Gross Profit / Average Inventory Cost
Example: You’re a footwear buyer for a premium retail brand. You invest $50,000 in luxury sneakers, and the gross profit from those sales is $150,000. Your GMROI is: $150,000 / $50,000 = 3.0
This result means you earned $3 for every dollar invested—a favorable outcome. It could encourage you to increase your investment in that successful sneaker category next season. Conversely, if your GMROI is under 1.0, it’s a red flag. Your inventory isn’t yielding enough profit, prompting a review of your buying strategy, cost negotiations, or a focus shift to higher-margin products.
Actionable Advice: Regularly evaluate GMROI across various categories. If one segment, like dresses, consistently outperforms outerwear, redirect more budget into that high-return category.
3. Weeks of Stock (WOS)
Weeks of Stock or Supply indicates how long your current inventory will last, given your average weekly sales. It helps you balance stock levels, ensuring you don’t overinvest or run out of critical items.
Formula:
WOS = Current Inventory / Average Weekly Sales
Example: If you manage handbag buying for a mid-market retailer, with 800 units in stock and weekly sales averaging 100 units, your WOS is: 800 / 100 = 8 weeks
An 8-week supply might seem comfortable, but if WOS unexpectedly climbs to 15 weeks, you may have overbought or misjudged demand. You’d likely plan a promotion to reduce excess stock. Conversely, if WOS drops to just 2 weeks, it’s time to accelerate reorders to avoid missing sales opportunities on top-performing styles.
Key Insight: Use WOS to guide your decisions on buying and reordering. Balance between not over-committing capital to excess inventory and ensuring you have enough stock to satisfy customer demand.
4. Inventory Turnover Rate
This metric measures how frequently you sell and replace your inventory over a specific period, shedding light on the efficiency of your stock management.
Formula:
Inventory Turnover = Cost of Goods Sold / Average Inventory
Example: Imagine you’re overseeing inventory for a casual apparel brand. Your annual cost of goods sold is $500,000, and your average inventory is $100,000. Your turnover rate is: $500,000 / $100,000 = 5
Turning over inventory five times a year is generally healthy. But if your rate is only 1 or 2, it indicates inefficiencies, with too many products sitting unsold and tying up cash. This situation calls for a review of slow-moving items and possibly a revamp of your buying strategy.
Pro Tip: Benchmark your turnover rate against similar brands to see where you stand. While high turnover is good for cash flow, ensure it doesn’t result in frequent stockouts of your best-sellers.
5. Markdown Rate
Markdown Rate reveals how much potential revenue you lose to discounts, impacting your overall profitability. Keeping this rate in check is vital to maintaining healthy margins.
Formula:
Markdown Rate (%) = (Total Markdown Amount / Total Sales) x 100
Example: If you run a luxury outerwear department and give $10,000 in markdowns on $50,000 in total sales, your markdown rate is: ($10,000 / $50,000) x 100 = 20%
A 20% markdown rate might be excessive, especially if it cuts too deeply into your profit margin. This rate suggests a need to reassess your pricing strategy or adjust inventory planning. Analyzing markdown trends also provides insights into which categories consistently require heavy discounting.
Pro Tip: Use historical markdown data to improve future buying. If evening wear often gets marked down, consider reducing buys or negotiating better supplier terms.
Learn, master and get comfortable using these metrics. You will use these over and over again every time you want to assess your product sales’ performance. Understanding what they mean will empower you to make informed decisions, align inventory with demand, and maximize profits. With each buying season you will gain experience and become more confident reading the numbers it will be second nature. Be curious and ask questions to find answers in your data – this is how you will develop your buying acumen.
Got questions or want to discuss how these metrics impact your strategy? Drop an email to hello@thriveinfashion.com
