Explain briefly the ABC analysis method for analyzing merchandise management performance.
What will be an ideal response?
An ABC analysis identifies the performance of individual SKUs in the assortment plan. It is used to determine which SKUs should be in the plan and how much backup stock and resulting product availability are provided for each SKU in the plan. In an ABC analysis, the SKUs in a merchandise category are rank-ordered by several performance measures, such as sales, gross margin, inventory turnover, and GMROI. Typically, this rank order reveals the general 80-20 principle; namely, approximately 80 percent of a retailer's sales or profits come from 20 percent of the products. This principle suggests that retailers should concentrate on the products that provide the biggest returns.
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