Gross Margin Return on Inventory Investment

In case customers receive a retailer's merchandise more favorably and that merchandise is able to earn higher profit as well, then the retailer's decisions will also favor the products offering the highest investment return potential. Gross margin return on inventory investment (GMROII) measures how successfully a retailer has invested its money used for inventory. GMROII helps describe the relationship between key retail performance measures: total sales, the gross profit margin earned on sales, and the number of dollars invested in inventory. It has relevance to any merchandise within the retailer's business. Additionally, GMROII is a feasible management tool for employee performance, especially those responsible for selling. This chapter concludes that GMROII is useful, but not perfect. Marketers and retail management must recognize the impact of their various programs on costs, gross margins, inventory, and customer satisfaction to determine the appropriate mix that yields the proper investment return.