# What is retail math?

I must admit that it never occurred to me that this term might need defined until I had a student ask about it in class.  Sometimes you work in and around an industry for so long you forget that has a language of its own that might be unfamiliar to those outside of (or brand new to) the industry.

As Valerie Lipow states in her article at career-advice.monster.com, “Math is used at every level of retailing, from the part-time sales clerk to the executive suite… And the higher up in retailing you go, the more math skills you need.”

The term retail math refers to those ratios and equations used by retailers in quantifying their performance.  Most of these equations utilize basic math skills that are no more complicated than high school algebra.  It is through the use of retail math that retail buyers and managers determine how fast their inventory is selling, whether or not they are making a profit, what their return on investment is, and whether or not they have cash available to spend.  On the Formula Sheet page of this blog you will find a listing of some of the most common retail math formulas used by retailers, wholesalers and manufacturers.  And in the Beginner’s Guide category you will find explanations of some of the more common retail math measurements.

Students often ask me how important it is for them to learn retail math.  My answer is that it depends.  It depends on how high you wish to go in the retail organization you are planning on working for.  The better you understand the meaning of each measurement, and the relationships between those measurements, the better you will be able to do your job – and the higher you will rise within your chosen profession.

If you would like to read more about how retail math is defined, I recommend Retail Math by Valerie Lipow at monster.com.

photo credit: <a href=”http://www.flickr.com/photos/eleaf/2536358399/”>Eleaf</a> via <a href=”http://photopin.com”>photopin</a> <a href=”http://creativecommons.org/licenses/by/2.0/”>cc</a>

# Why 3 Buckets???

That’s a pretty legitimate question. Why on earth did I name a blog about retail math “3 buckets blogging?”  It really does sound like it should be about farming, not teaching math.

The answer has to do with something I learned when I first started studying all the various formulas and ratios used in analyzing the performance of retail merchants. All of these formulas/ratios fall into what are basically 3 categories:  analysis of sales performance, analysis of profitability, and analysis of asset efficiency. Three categories, or three buckets of measurements.

Many of us find it easier to understand and remember multiple concepts when we can put them into logical frameworks.  That’s the idea behind the three buckets.  Think of all of those retail math formulas as being sorted into these three buckets.  For example, same store sales obviously goes into the sales bucket while inventory turnover goes into the asset efficiency bucket.

I’ve found that covering concepts this way in class helps my students better understand the relationships between the measurements.

# Introduction

I’m Nicole Cox, an instructor in the Marketing Department at the Walton College of Business, University of Arkansas.  I’m also co-author of the “Retail Math Workbook” which is being published by Pearson this summer.  It’s a short little book written by myself, Carole Shook (also an instructor at the Walton College of Business, University of Arkansas) and Charles Halliburton (Senior Planner at Walmart Stores, Inc.)

You might wonder why a book on Retail Math.  In reality, the credit for this book should probably go to two people who aren’t mentioned anywhere in it:  Dr. Tom Jensen and Ms. Cindy Sims.  In 2003 I was retired from working as Director of Marketing Research at Walmart Stores, Inc. and looking for something new to do.  Dr. Jensen, chair of the Marketing Department at the UofA, rescued me by hiring me to teach Category Management for the summer.  It was a fairly new course, and there were no existing textbooks on the topic.  I did pretty well at finding case studies and other materials until I reached the section on “Category Scorecards and Retail Math.”

Despite my best efforts, I couldn’t find a book, article, case study, or website that was appropriate for this section.  Desperate, I called an old friend at Walmart named Cindy Sims.  Cindy said “I know exactly who you need to talk to.  His name is Charles Halliburton and he is the god of retail math.”   Charles and I met a week later, and the idea for this workbook was born.

Now for the serious stuff.  During the writing of this workbook, we learned a lot about teaching both Retail Strategy and retail math.  And, I still have a lot more to learn.  I’m writing this blog with the hope of sharing some of the things I have learned.  And, maybe some of you will be kind enough to share your ideas as well.