What is happening today?
Most retailers rely exclusively on their own sales history to inform their inventory strategy.
By not having a clear understanding of what the market demand looks like in your local area, you might be missing out on a lot of sales opportunities.
How can Category Compass help me?
Category Compass calculates the optimal inventory mix for your store:
By combining these two powerful datasets, our recommendations optimize your inventory for current customers and future customers at the same time. We found that a 50/50 split between the two yields great results, but you can play around with the formula yourself to find the ratio that works best for you.
How does Category Compass come up with a recommendation?
Calculating your sales potential
When you review the list of recommended inventory, you will be able to compare your current inventory with the newly recommended inventory mix - your 'potential'.
Your 'potential' is calculated based on the mix between store sales and market demand data.
Let's start with an example for a single tire:
Imagine you sold a total of 50 215/55R16 Tier 1 tires in the last 12 months, 0.50% of your 10,000 sales for the year.
How does an inventory recommendation get generated?
We rank your SKUs based by potential GMROI. The higher the ranking, the more productive a tire will be in your inventory. So whether you decide to stock 50 or 400 SKUs, Category Compass will always prioritize the most productive tires first.
How many tires should I stock?
Although this a question only you can answer, Category Compass will give you all the information you need to make a more informed decision. Here are a few things to consider when making this decision:
How SKUs are selected in our recommendation
The focus of Category Compass is to make sure you meet the demand in your market. For this, you are free to stock and sell whatever SKU you prefer.
What is my 'local market' and how is it defined?
Torqata uses the zip codes from your transaction data to create an area which is defined as your local market. In case your transaction data doesn't include customer data, we use the zip codes in a 10 mile radius around your store.
In order to estimate demand for different tiers within a certain size, Torqata looks at the age of vehicles as well as ATD sales data to come up with a prediction of sales across different tiers, enabling you to optimize your good/better/best strategy to the demand in your local area.
Market Coverage is the amount of vehicles in your area you can serve with your inventory on hand.
Your current market coverage refers to your current inventory. If this is 0 it means we didn’t get your inventory data from your POS provider.
Your recommended market coverage is the coverage you would get if you were to implement all of the recommendations within Category Compass.
GMROI is the acronym for 'Gross Margin Return on Inventory'. This is a common concept for retailers to evaluate and optimize the productivity of their inventory. GMROI optimizes for both sales volume as well as margins.
Your GMROI is the total profit of your inventory divided by the total cost of that inventory. 100% GMROI would mean your profit on the tire is the same as the cost to hold the set you have on hand. We use a GMROI calculation for each SKU to rank their relative productivity.
A tier is a classification of brands based on their perceived quality and price point and aligns with the concept of good/better/best.
If you have tier designations in your POS, we will use those, if not, we default to the ATD classification.
Category Compass creates a recommendation that is not just based on your past sales, but also based on Market demand data.
Since it is not guaranteed you will be able to sell exactly what the market sells without additional sales and marketing efforts, we refer to it as a potential.
When your potential is lower than your current sales, it means that you are selling more of that size/tier than the average retailer in your local area. This doesn’t mean your sales will drop, but that if you sell more of other tires, these numbers will get closer to each other.
To help you optimize your inventory, we look at the sales and profits your inventory drives, and allow you to compare it to your potential future inventory as generated by Category Compass.
When we say ‘from inventory’ we really mean ‘from the tire size/tier combinations you have in your current inventory’
Our sales data uses your trailing 12 month data. Meaning will look backwards from today to the last 365 days of sales data.
The retail price is the average price you sold the tire for during the last 12 months, based on your transaction data. If you haven’t sold the tire in 12 months, we use the 12 month average retail price across all Torqata customers.
The cost of the tire is the average cost at which you acquired the tire for in the last 12 months based on your transaction data. If you don’t have the tire in your POS system, we use the average cost of the tire across all Torqata customers.
Your margin is calculated by your average retail price and cost. If we don’t get data from your POS, we use national averages across all Torqata customers.
To calculate your profit we multiply your margin by your total sales in the last 12 months.
Turns (SKUs) are based on sets of 4. So we take your total sales from inventory and divide it by your amount of SKUs in inventory multiplied by 4.
Turns (units) are used to calculate to aggregate turns of your entire inventory by dividing your total sales from inventory by the quantity on hand (based on your current inventory).
Category Compass assumes you stock one set per SKU unless you sell more than a given threshold (default is set to 20 sales per month), in which case we recommend as second set. If your strategy is to stock more than that (e.g. if you buy in bulk or promotions), you should lower the amount of units or SKUs in your input to account for the space you need for that additional inventory.
Your local market is defined by the zip codes of customers who have transacted in your store in the last 12 months.
Category Compass allows you to add a dollar value or percentage to a specific brand to reflect the extra margin you make from your reward programs. This is a simple method to make sure the GMROI and profit calculation are closer to your actual numbers.
Some retailers will charge an additional service fee to install a set of tires independently from their price. So when you charge $10 per tire, your lower tier tires will become more profitable for your business than when you only make money on the product margin. You could also use this field to add any additional up-sell value you believe you can get from each customer sale.
To not overwhelm you, we only show the most essential columns on default. There is an icon on the bottom left corner of the table that allows you turn columns on or off so you can make sure you have the most relevant data points available to you.