Margin tools: reading the price ladder before the season was bought

What it is

Each season Nike's global product creation group handed North America a line of basketball shoes with a pricing ladder attached. Khounlavong came to merchandising from sales in May 2011. In his fiscal 2012 review he wrote that profitability had become a key metric and that the ability to evaluate the entire assortment was pivotal.

What Khounlavong did

• Created the gross margin evaluation template in fiscal 2012. He used it to assess the pricing ladder from global product creation and to change the line-up where needed.
• Built the template to show the effect of a price change at once and to compare the result with the competitive landscape.
• Carried price moves into the seasonal margin reviews. The spring 2013 scenario for Basketball footwear lists the Zoom Hyper Disruptor moving from $125 to $130 and the Hyperdunk Low from $115 to $120.
• Took the fall 2013 line through margin review in September 2012. The review in his files records four confirmed price increases. The Zoom Soldier VII and its team version moved from $120 to $125. The Air Max Stutter Step moved from $80 to $85. The nubuck Air Visi Pro III moved from $65 to $68.
• Shifted forecast volume in the same review from margin draining models to margin gaining ones. The Hyperfuse and its team version were dropped. The first KD VI forecast was cut from 180,000 to 110,000 pairs. The Air Max LeBron X Low was raised from 125,000 to 155,000 and the Zoom Soldier VII from 110,000 to 160,000.
• Sorted styles into quadrants by margin and revenue, and wrote down why each low margin style was priced as it was.
• Updated the margin calculation tool in fiscal 2013, alongside sub-category reporting for signature, Elite and Easter product.
• Kept margin ladders for single franchises. Files for the Overplay and the Air Visi Pro compare landed cost, wholesale, retail and margin across successive models.
• Managed the tool through fiscal 2015, and coached the Jordan brand team on one of his North America planning tools that year.

Results

• Fiscal 2013: footwear margin finished at 31.4% against a target of 30.8%. That was 90 basis points above the prior year and 60 above budget, on footwear revenue that grew 15%.
• Fiscal 2014: gross margin on footwear rose 230 basis points over the prior year and 230 over budget, with revenue up 17.1%.
• The fall 2013 review showed a gross revenue plan of $154.6M for the season's footwear against a plan target of $128.8M, with the average price per unit up $1.56, or 2.9%.
• The category's business review for the second quarter of fiscal 2013 put it in one line: "Margin growth exceeds revenue growth!"
• His 2015 career profile names the tool as the blended margin calculation tool and credits it with alignment and informed decisions across partners through increased transparency.

At a glance