Dear book lovers and retail enthusiasts,
We are excited to invite you to a book signing and
presentation of "C&A's Secret Formula Rediscovered" by
Ansgar John Brenninkmeijer. Join us for an insightful hour as the author reveals the hidden
Opportunity Cost and Contribution dollars system that was discovered by Bernard
Joseph Brenninkmeijer, the son of one of the founders of C&A, in 1906 right here in Amsterdam!
This rediscovered retail method has been kept a secret for
many years and is now revealed in this booklet. The book introduces the
surprisingly simple math behind Joseph Brenninkmeijer’s retail method and
explains how it could be implemented in your company today.
This book is a must-read for successful retail founders
around the world who are looking for an alternative to conventional gross
margin percentage frameworks when managing their assortments, pricing, and
markdowns (see discussion below). It is a unique opportunity to learn from the experiences of one of
the most successful retail families in the world.
Don't miss this opportunity to meet the author and get your
signed copy* of
"C&A's Secret Formula Rediscovered". We look forward to seeing
you at the event!
WHERE?
In the Boardroom in the Beurs van Berlage at Oudebrugsteeg 9
in Amsterdam. For directions, see: https://meetberlage.com/contact/en/
WHEN?
Wednesday
April 19th. The presentation starts at 13.30 (doors open at 13:00) Signing
from 13.45
This will
be followed by a presentation about value investing in general and
ValueMachinesFund in particular (in Dutch) starting at 15:00 and ending at
16:30
RSVP:
Due to a
limited number of places, please register in time (you can simply respond to
this message) Please specify: Book presentation and/or ValueMachinesFund presentation.
Best regards from the founders of ValueMachinesFund,
Björn Kijl,
Ansgar John Brenninkmeijer, Hendrik Oude Nijhuis
https://www.valuemachinesfund.nl
PS:
Attention! No AFM supervision. No prospectus required.
*Booklet
for sale here: https://www.managementboek.nl/boek/9789464378511/breakthrough-candas-secret-formula-rediscovered-ansgar-john-brenninkmeijer and during the event for € 7,47.
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Discussion with ChatGPT illustrates the current (flawed) conventional wisdom using retail % frameworks instead of Opportunity Cost: (2021 version 3):
Q: Are there stores that use contribution margin dollars instead of gross margin percentages for assortment evaluation?
A: Yes, there are stores that use contribution margin dollars instead of gross margin percentages for assortment evaluation. In fact, many retailers use contribution margin analysis to make merchandising decisions. Contribution margin is the difference between the selling price of a product and its variable costs, such as direct material costs, direct labor costs, and variable overhead costs. By focusing on contribution margin, retailers can evaluate the profitability of each individual product or category, rather than simply looking at the overall gross margin percentage. Using contribution margin analysis, retailers can identify which products or categories are the most profitable, and adjust their assortment accordingly. For example, if a retailer determines that a particular product has a low contribution margin, they may choose to discontinue that product or negotiate with the supplier to reduce the cost of goods sold. In summary, while gross margin percentage is a commonly used metric in retail, contribution margin analysis can provide a more detailed and accurate picture of the profitability of individual products or categories.
Q: Which stores?
It is difficult to provide an exhaustive list of stores that use contribution margin dollars instead of gross margin percentages for assortment evaluation as it can vary by company and industry. However, here are some examples of stores that have been known to use contribution margin analysis:
Walmart: Walmart is known to use contribution margin analysis to evaluate the profitability of its product assortment and make merchandising decisions.
Target: Target has also been reported to use contribution margin analysis to evaluate the profitability of individual products and categories.
Amazon: Amazon is known to use contribution margin analysis to evaluate the profitability of its product offerings and adjust pricing strategies accordingly.
Best Buy: Best Buy uses contribution margin analysis to evaluate the profitability of its product assortment and make decisions about which products to carry in its stores.
Home Depot: Home Depot has been reported to use contribution margin analysis to evaluate the profitability of its product assortment and make merchandising decisions.
Again, it is important to note that the use of contribution margin analysis can vary by company and industry, and not all stores may use this approach.
Q: Do they also set a minimum average gross margin percentage target?
Yes, many stores that use contribution margin analysis also set a minimum average gross margin percentage target. While contribution margin analysis provides a detailed view of profitability at the individual product or category level, gross margin percentage is still an important metric for evaluating overall store performance and ensuring profitability. Setting a minimum average gross margin percentage target can help retailers maintain profitability and ensure that their pricing strategy is aligned with their overall business goals. However, it is important to note that the minimum gross margin percentage target can vary depending on the industry, product category, and other factors. For example, some retailers in highly competitive industries may set a lower minimum gross margin percentage target in order to remain competitive on price, while other retailers in more niche markets may set a higher minimum gross margin percentage target in order to maintain profitability despite lower sales volume. In summary, while contribution margin analysis is an important tool for evaluating individual product profitability, setting a minimum gross margin percentage target can help retailers maintain overall profitability and ensure their pricing strategy is aligned with their business goals.
Q: Ingvar Kamprad the founder of IKEA wrote "Our pricing policy is fundamental. The stumbling block is when we price ourselves out of the market. Our planners constantly go on that we must keep our “total gross profit margin” to a certain percentage. I say to these retail "experts", “What the hell is ‘percentage’ anyhow?” Percentage is something mysterious. The only thing that interests us at IKEA is what is left in our pocket when the season is over."
Yes, Ingvar Kamprad, the founder of IKEA, was known for his unconventional approach to pricing strategy, and he placed a strong emphasis on profitability rather than simply focusing on gross margin percentage targets. Kamprad believed that it was more important to focus on the actual profitability of the company rather than simply trying to achieve a certain gross margin percentage. He felt that focusing on the percentage alone could lead to pricing decisions that were not aligned with the company's overall profitability goals. Instead, Kamprad believed that the company's pricing policy should be based on what was left in the company's pocket at the end of the season, after all costs had been taken into account. By focusing on actual profitability rather than simply trying to hit a certain gross margin percentage target, Kamprad believed that the company could make better pricing decisions and maintain long-term profitability. Overall, Kamprad's emphasis on profitability over gross margin percentage targets is a reminder that there is no one-size-fits-all approach to pricing strategy, and that companies need to consider a range of factors, including their own cost structure and competitive environment, when making pricing decisions.
Q: Why is the cost structure relevant? Aren't opportunity costs more important?
The cost structure of a company is relevant to pricing decisions because it directly impacts the profitability of the business. Understanding the cost structure is important because it allows companies to determine the minimum price that they need to charge for a product in order to cover their costs and achieve a desired profit margin (percentage)*. Opportunity costs are also an important consideration in pricing decisions. Opportunity costs refer to the potential loss of revenue or profit that a company could incur by pursuing one course of action over another. For example, if a company decides to lower the price of a product in order to increase sales volume, there may be an opportunity cost associated with the lower profit margin. Both cost structure and opportunity costs are important factors to consider when making pricing decisions. By understanding the cost structure of their business, companies can ensure that they are charging a price that covers their costs and maintains profitability. At the same time, considering opportunity costs can help companies evaluate the potential tradeoffs between different pricing strategies and choose the one that will maximize overall profitability in the long term. In summary, both cost structure and opportunity costs are important considerations in pricing decisions, and companies need to carefully weigh these factors in order to make informed pricing decisions that maximize profitability.
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* Opportunity cost thinking is very different, as Dieter Brandes ex-CEO of Aldi Nord explained to me a change in cost structure, for example, a doubling of rents, should have no effect whatsoever on pricing decisions.
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"A store has average Selling, General and Administrative expenses of 40% of sales. It sells a polyester dress with a buying price of 3 and selling price of 10. Also a silk dress with a buying price of 60 and selling price of 90. What are the margins of the dresses? And which is more profitable if the same number are sold at the same turnover speed?"
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