A retail store can post strong top-line sales and still bleed cash through overstock and markdowns. The diagnostic is not sales — it is how efficiently inventory turns into margin.
The retail diagnostic dashboard
| Metric | Healthy | Red line |
|---|---|---|
| Gross margin | 40-55% | below segment norm |
| Occupancy (rent %) | 6-12% | above 12% |
| Inventory turnover | 4-12x/yr | below 4x (dead stock) |
| Sell-through (full price) | 70-85% | below 60% |
| GMROI | 2.0-4.0x | below 1.5x |
| Conversion | 20-35% | below 20% |
GMROI is the quiet hero
GMROI = gross margin dollars / average inventory cost. It combines margin and turnover into one number: for every dollar tied up in stock, how many gross-margin dollars did you get back? A GMROI below 1.0 means you lose money on every inventory dollar held. Most healthy retailers target 3.0x+ on core categories.
Markdown erosion
Fashion markdowns can erase 30-50% of initial margin. The fix is not deeper discounts — it is earlier action: mark down weak variants while cash can still be recovered, and reorder proven core before it sells out. Sell-through by SKU, watched weekly, prevents the pile-up.
Occupancy check
If rent + CAM exceeds 12% of sales, the lease is the constraint. You cannot out-discount a lease problem; you can only fix it at renewal or relocation.