CRA Fundamentals & Core Concepts 3 — Questions and Answers
Question 1: Gross Margin Return on Inventory Investment (GMROII) is calculated as:
- Gross margin dollars divided by average inventory cost (Correct answer)
- Net sales divided by ending inventory at retail
- Cost of goods sold divided by average inventory
- Gross margin percentage multiplied by inventory turnover
Correct answer: Gross margin dollars divided by average inventory cost
GMROII measures how many dollars of gross margin are earned for each dollar invested in inventory, indicating inventory productivity.
Question 2: Which type of retail pricing strategy involves setting a high initial price and gradually lowering it over time?
- Penetration pricing
- Everyday low pricing (EDLP)
- Price skimming (Correct answer)
- Loss leader pricing
Correct answer: Price skimming
Price skimming targets early adopters at a premium price, then lowers the price to attract more price-sensitive segments over time.
Question 3: In the context of retail demand forecasting, 'cannibalization' occurs when:
- A new product reduces sales of an existing product in the retailer's own assortment (Correct answer)
- A competitor's promotion erodes the retailer's market share
- Overstocked items are sold below cost
- A vendor reduces supply to inflate prices
Correct answer: A new product reduces sales of an existing product in the retailer's own assortment
Cannibalization happens when a new or promoted item takes sales away from another item the same retailer already sells.
Question 4: What is the primary purpose of a retail 'markdown cadence'?
- To schedule vendor payments efficiently
- To systematically reduce prices on aging inventory to clear stock before season end (Correct answer)
- To determine optimal reorder points for fast movers
- To align promotional events with competitor activity
Correct answer: To systematically reduce prices on aging inventory to clear stock before season end
A markdown cadence is a planned schedule of progressive price reductions designed to liquidate slow-moving inventory before it becomes obsolete.
Question 5: Which KPI directly measures how efficiently a retailer uses its selling floor space?
- Basket size
- Sales per square foot (Correct answer)
- Stock-to-sales ratio
- Gross margin percentage
Correct answer: Sales per square foot
Sales per square foot (or square meter) is the standard metric for evaluating how productively a retailer monetizes its physical floor area.
Question 6: A retailer notices its 'stock-to-sales ratio' is rising week over week. This most likely indicates:
- Inventory is selling through faster than expected
- Inventory is building up relative to sales, signaling potential overstock (Correct answer)
- The retailer is achieving higher gross margins
- Replenishment orders are arriving early
Correct answer: Inventory is building up relative to sales, signaling potential overstock
A rising stock-to-sales ratio means inventory is accumulating faster than it is being sold, which could lead to markdowns or obsolescence.
Question 7: In retail, 'private label' (store brand) products primarily benefit retailers by:
- Reducing the need for merchandising staff
- Providing higher gross margins and differentiation versus national brands (Correct answer)
- Eliminating the need for vendor negotiations
- Shortening the supply chain lead times automatically
Correct answer: Providing higher gross margins and differentiation versus national brands
Private label products are sourced directly by the retailer, typically yielding higher gross margins and creating assortment exclusivity that differentiates the retailer.
CRA Fundamentals & Core Concepts 3
Gross Margin Return on Inventory Investment (GMROII) is calculated as: