If the COGS for merchandise operations have increased over three months, what might the shop manager need to investigate?

When COGS (Cost of Goods Sold) for merchandise operations increase over a period of time, it is crucial for the shop manager to investigate the potential reasons behind this trend. One significant area to explore is the impact of excessive discounts or markdowns on inventory.

If the shop manager has been implementing frequent or steep discounts to attract customers, this could lead to a higher turnover of merchandise. While discounts might boost sales volume, they can also reduce profit margins. If items are being sold at a lower price, this will ultimately affect the COGS figures, possibly increasing them if the discounts are significant enough that they lead to selling inventory that might have been more profitable at full price. Additionally, if discounts are not carefully managed, they can also lead to inventory management issues, such as overstocking certain items, which further ties up costs.

Identifying excessive markdowns as a potential cause allows the manager to reassess pricing strategies, evaluate profitability, and consider more effective marketing tactics that might drive sales without compromising profit margins. This focus on managing discounts is essential to ensuring that increased COGS does not diminish overall profitability.