What type of analysis is utilized to evaluate merchandise profitability?

Gross margin analysis is a method used to evaluate merchandise profitability by examining the difference between sales revenue and the cost of goods sold (COGS). This analysis helps retailers understand how much money they retain from each sale after accounting for the costs directly associated with producing or purchasing the goods sold. The gross margin is usually expressed as a percentage and provides insight into pricing strategy, operational efficiency, and product line performance.

By focusing on gross margin, businesses can identify which products are most profitable and make informed decisions about pricing, promotions, and inventory management. It is particularly useful for retailers aiming to maximize their profit margins on specific items or throughout their entire product range. This analysis is foundational in fashion merchandising as it helps inform decisions that can lead to overall improved financial performance.