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Merchandise Flow

What's on the Merchandise Flow page?

The Merchandise Flow report puts five measures on one shared time axis, one point per month:

  • Sales — sales at retail, the same figure the Sales Graphs report shows.
  • Gross margin — gross margin as a percentage of sales.
  • Purchases received — the cost of everything received into inventory.
  • Adjustments — the cost of every inventory adjustment that is not a receive: counts, trash, store use, replacements and manual adjustments.
  • Shrink rate — those same adjustments as a percentage, over a rolling twelve months.
  • Inventory on hand — the cost of inventory owned at the end of each month.

These five belong together because four of them produce the fifth. Every month, inventory changes by exactly what came in, what went out through sales, and what was adjusted.

Reading the inventory roll-forward

The panel on the right of the charts shows one month at a time, laid out as the calculation that produces the closing balance:

Opening + Purchases − COGS ± Adjustments = Closing

Opening is the previous month's Closing, so the months chain together across the whole report. Hover anywhere on the charts, or click a chart and use the left and right arrow keys, to move the panel to a different month. Below the calculation the panel also shows that month's Sales, Gross margin, Receipts count, and how sales compared with the same month a year earlier.

A month labelled (partial) has not finished yet, so its totals are still growing.

Aligned stack: five measures on one time axis

Aligned stack is the view the report opens in. Each measure gets its own strip, and all five strips share one time axis down the page. A vertical line follows the pointer across all five at once, so you can read what happened in one month across every measure without switching charts.

Each strip also carries a gray line showing the same month one year earlier, so every measure is compared against last year in place.

The strips are separate rather than combined because the measures are on different scales — a $30,000 adjustment and a $600,000 sales month cannot share a vertical axis without one of them becoming unreadable — and because gross margin is a percentage, which has no dollar scale at all.

Comparing across years without inflation getting in the way

The Nominal $ / Real $ (store) / Real $ (CPI) / Units switch above the charts changes what the dollar figures are measured in. It scopes the charts and the tiles at the top; the table and the roll-forward panel always stay in nominal dollars, because those are the figures that tie to the other reports.

Nominal $ is the default: the actual dollars, as recorded.

Real $ (store) restates every month in the most recent month's money, using price changes measured from your own sales and receiving. Two indices are built and each is used where it belongs — a selling-price index for sales, and a cost index for purchases, adjustments and inventory — so a cost figure is never adjusted by a change in what you charged.

Real $ (CPI) does the same using CPI-U, the general US consumer price index. Use it to ask a different question: not "did we raise prices" but "did we keep pace with the wider economy". CPI is published about a month behind, so the most recent month or two have no index; those months are left out of this view rather than estimated, and the note above the charts says how many.

Units drops dollars altogether and counts items: units sold, units received, units adjusted, units on hand. It cannot be affected by prices at all. The caveat is that one unit might be a packet of seeds and the next a mature tree, so read the direction of the line rather than its height.

Gross margin and the shrink rate never change, whichever is selected — they are already percentages of same-period figures, so inflation cancels out of them. Their labels say unaffected as a reminder.

How the store's own price index is built

For each item, the index compares what that item sold for this year against what the same item sold for a year earlier, weighted by how much of it moved. Items that came into or went out of the range are excluded, so a year of stocking pricier goods does not get counted as a price rise.

The comparison pools twelve months at a time. A single month is too thin a base in a seasonal business — in a quiet month only a small share of sales may be items that were also sold in that month a year before — while a full year of matching covers most of the range.

The note above the charts reports how much the two indices have moved and how much of the latest year was matched, so you can judge how much weight the adjustment deserves.

When to reach for which

  • Comparing this season against previous ones, and wanting the answer in your own terms: Real $ (store).
  • Asking whether the business is growing in real economic terms: Real $ (CPI).
  • Wanting the volume story with no index in the way: Units.
  • Reconciling to another report, or checking the roll-forward: Nominal $.

Seeing what is driving the adjustments

The Adjustments strip has a total / by type switch next to its title.

Total is the default: one strip showing every adjustment added together.

By type replaces it with one short strip per adjustment type — physical count variance, trash, replacements and so on — largest first, with the smallest types collected into Other. Each strip is labelled with that type's total for the period and its share of all adjustments, so a strip says how much of the problem it is and not just what shape it has.

All the type strips share one vertical scale. That is deliberate: if each strip were scaled to its own maximum, a type worth a few hundred dollars would look the same size as one worth a quarter of a million. Sharing the scale means the strip that visibly moves is the one that matters, and the flat ones are flat because they are small.

The shapes are as informative as the sizes. Count variance tends to arrive in spikes, because it is found when a count is done rather than as it happens; trash and store use tend to be a steady drip with a seasonal rhythm. A type that changes shape — a steady drip that becomes spiky, or the reverse — is usually worth asking about.

Whichever way the strip is set, the readout panel lists that month's adjustments by type, largest first.

Reading the Shrink rate strip

Shrink rate turns the adjustments above it into a percentage, so a month can be compared against another month and against the year before it rather than just read as a dollar amount.

Two things about it are worth knowing.

It covers twelve months, not one. Physical count variance is usually the largest single kind of adjustment, and it lands in the month the count was done — not in the months the stock actually went missing. A single month's rate therefore says more about when you counted than about what you lost: a December with a large count and almost no receiving can read as several hundred percent. Each point on this strip is the previous twelve months added up, which covers at least one full count cycle, so the timing of a count stops distorting it.

You can read it against two different denominators. Click the labels next to the strip title to switch:

  • % of COGS — of everything that left the building as cost, how much left without being sold. Adjustments are valued at cost, so this compares like with like, and it is the figure closest to the shrink rate retailers usually quote.
  • % of inventory — of the stock being held, how much is being lost. This is the more useful one where goods spoil, die or go out of season, because that kind of loss is caused by holding stock rather than by selling it.

The two are linked by inventory turns: the inventory figure is the COGS figure multiplied by how many times stock turns over in the year. They can move in opposite directions, and when they do it is informative — a falling % of COGS alongside a rising % of inventory means losses are shrinking more slowly than the stock they come out of.

A loss shows as a positive percentage. In the rare case where adjustments add stock overall, the rate goes negative.

The Table view lists both figures for every month, and the readout panel shows both for whichever month you are hovering, whichever one the strip is currently drawing.

One chart: where the inventory dollars went

One chart puts the dollar measures on a single chart with a zero line through the middle:

  • Bars above the line are purchases received — inventory coming in.
  • Bars below the line are COGS and shrink — inventory going out.
  • The lines are Inventory on hand and Sales at retail.

This is the roll-forward drawn out month by month. It is the quickest way to see whether a season was bought into or sold down: tall bars above the line with a rising inventory line means buying ahead of selling.

Year over year: comparing against previous years

Year over year redraws the selected measure as twelve months across, with one line per year. The current year is drawn in color and earlier years fade to gray as they get older, so a seasonal business can see whether this year is tracking ahead of or behind previous ones.

Use the Measure drop-down above the chart to switch which measure is being compared, including either shrink rate. The years shown follow the History selection in the filter row.

Filtering the Merchandise Flow report

The filter row above the charts scopes every chart, tile and table on the page:

  • Department — select any number of departments and sub-departments. Leaving it empty includes everything.
  • (no department) — an entry at the bottom of the department list. Manual sales, which are rung up without an item, belong to no department. Selecting every department still leaves these out; add (no department) to include them and reach the true company total.
  • Division — appears when more than one division is set up.
  • History — how far back to chart: 3 years, 5 years or 10 years.

Click Go to reload with your selections.

The date box in the left sidebar sets the last month charted, so you can look at the report as it stood at an earlier date.

Season-to-date totals at the top

The tiles above the charts total the current year from January through the last full month, and compare that against the same window in the previous year. The tile heading names the months it covers: if a month cannot be measured on the current basis — for example the newest month under Real $ (CPI), where the index is not published yet — it is dropped from both years so the two sides always cover the same months, and the heading shortens to match. Each tile also carries a small two-year trend line, with the most recent month marked, so the direction is visible without reading the charts. Green means the change is a good one and red means it is not — for Shrink and adjustments the comparison is stated as being less than last year, because a smaller number is the better outcome.

The Inventory on hand tile is a balance rather than a total, so it compares against the same month a year earlier instead.

Why Purchases received differs from the Departments Receiving report

Merchandise Flow excludes consignment items from its cost figures, because consignment stock is not owned and cannot move the inventory balance. The Departments Receiving report includes them.

The two reports therefore differ by exactly the consignment receives in the period:

Purchases received + consignment receives = Departments Receiving total

If the store carries no consignment items, the two figures are identical.

Why Gross margin uses a different cost than the roll-forward

For the same reason, in the other direction. A consignment sale is a real sale with a real cost, so gross margin includes it — which keeps this report's margin identical to the Sales Graphs report. The roll-forward excludes it, so that the calculation still balances.

When a month contains consignment sales, the readout panel names the amount underneath the calculation. When it does not, no note appears and the two costs are the same number.

Checking the numbers against other reports

Every figure on this page is the same figure another report already shows:

  • Sales, Gross margin and Receipts match the Sales Graphs report.
  • Adjustments match the Inventory Adjustments report.
  • Inventory on hand matches the Inventory Graphs report and the Daily Inventory report.
  • Purchases received matches the Departments Receiving report, apart from consignment as described above.

Viewing the numbers as a table

Click Table to show every month as rows, with sales, COGS, gross margin percentage, purchases, adjustments, both shrink rates, and the opening and closing inventory balances. The table follows the same filters as the charts, and lists the most recent month first. Click Table again to hide it.