In this column, we’ll compare March PG&A department data from one of our metric dealer 20-groups against the national norm numbers (overall averages for all our metric 20-groups) and the average of the top 5 performing dealers in each category.I prefer to start out with some of the total store data, so you can get a picture of what is happening in the powersports business climate.
In chart 1, we find some very interesting numbers. First, total store gross profit is down slightly from last year. However, net operating profit is up considerably — in fact the top 5 dealers are showing a respectable 7.6 percent. This indicates that these dealers have balanced their expenses versus revenue much better than last year at this time.
Check out the increases in door swings and logged contacts. Again, the top 5 dealers are doing a substantially better job of increasing customer traffic and capturing customer information for follow-up than the group or the national norm dealers. One leads to the other. If you log your contacts and follow-up with them, you will increase your floor traffic and sales.
Zeroing in on the PG&A department numbers, chart 2 shows that sales are up for everyone — almost 50 percent up for the top 5 dealers. Interestingly, the invoice volume has decreased for the group and the national norm dealers. Even though there was an increase for the top 5 dealers, it is not that much when compared with the increase in sales. How can this be? The only answer is that they are selling more per invoice. The top 5 dealers managed to raise their department net operating profit almost 6% — that is very significant. Sell more while controlling costs, and you will end up with more take-home profit. Not a hard formula to figure out.
One of our very profitable dealers wisely stated, “Accept that retail is a fair price and act accordingly.” Good advice for those who might be working for you who share the mentality that everything has to be discounted. Not true, grasshopper. This really shows up in the difference in margins from the group and national norms compared with the top 5 dealers in chart 3. Not only do they get higher margins, they sell $300 to $400 more in gross profit per unit. As a result, they contribute more to the total store gross profit.
Chart 4 reveals that the top 5 dealers have larger operations or at least they have more staff in their PG&A departments, on average. Despite this, they have lower personnel expense, and their employees sell more than $4,000 more in gross profit per month than the group average or the national norm dealers. Do the math. This is impressive performance.
Finally, in chart 5 it looks like inventory obsolescence is exceptional for the national norm dealers and incredible for the top 5. Alas, it is really not a realistic measurement at this point. Most of these dealers took the write-down for their obsolete inventory at year-end 2011, but many probably still have this stuff in their dealerships. Over time, they will sell it over the web, donate or dumpster it. Of course it will have to be put back into inventory as they do this, or the long arm of the IRS will be looking for them. Obsolescence numbers will increase as the year progresses, unless dealers take smaller write-offs during the year. Reality shows that few dealers can hold 10 percent or less obsolescence, but it is achievable. Regardless, you should strive to get there. Obsolete inventory ties up cash that could be turning over several times a year at a 30 to 40 percent gross profit margin. Speaking of turns, the top 5 show very high turns in hard parts. There is a point of diminishing returns here, so be careful of not stocking sufficient inventory to satisfy the needs of your service operation. That will cost you business in the long run.
I hope you will compare this information against the performance of your parts department. After all, the first step in repairing something is recognizing that it is broken. If you are off the mark, there are processes you can and should implement to bring about positive changes. MPN
