SALES METRICS – Successful retail is in the detail

The summer season is the High Season for Gibraltar’s retail businesses, with thousands of potential shoppers filling Main Street and other parts of town on a daily basis. Retail is one of the most competitive industries with sharp focus on increasing sales and retaining more customers. But sales are not the only parameter that determine success. In order for retail business owners to stay on top, they need to know everything about their business.

They may not seem glamorous, but metrics equal money. When advising retailers about growing their business, we often tell business owners and store managers that in order to make the best decisions that impact on their bottom line, they need to derive actionable insights from their business data. While there are hundreds of metrics that retailers could keep track of, we recommend examining the following ones which stand out in terms of the competitive advantage they provide and the help they provide to deliver superior performance:

Revenue side retail metrics:

Footfalls 

Tracking the number of visitors to a store is a basic metric that every retailer should absolutely track. Whether it’s the shopping season, a new store location, the new display window design, or that loyalty program that a shop has recently launched, footfalls will provide store managers with the knowledge of what’s working and what needs to be improved. Once the footfalls are known, it’s important to track whether these are generating pounds for the business.

Conversion % 

Studies show that only about 30% of retail store visitors actually make a purchase, which means that at least 70% of the customers can still be influenced to buy. Retail managers should evaluate whether their store layout, product range, promotions and checkout processes are in line with what the customer is expecting.

Sale per square meter/foot

This indicator measures how much average sale is generated from each square meter of area in the retail store. Sales per square meter can provide important insights in terms of the effectiveness of the store layout and the performance of sales personnel. It may also give an indication on whether a store size is too big or too small in relation to the volume of sales the store takes.

Average customer spend

This indicator involves calculating the average amount customers are spending during each purchase. It can also be compared with the average number of units purchased per transaction (UPT). Average purchase value can vary depending on the type of retail store. For example, an electronics retail store will generally have a higher average spend per transaction and a lower UPT compared to an apparel store which is likely to have a lower average spend but higher units per transactions. An analysis of average customer spend can help retailers in segmenting their customers and plan their sales and marketing efforts.

Cost side retail metrics:

Distribution of staff hours

Store labour is the largest category of controllable non-product cost for retailers. For this reason, it is important that appropriate labour hours are deployed to support planned sales. However, more important to survival in the current tough retail environment is labour flexibility — that is, not the total number of hours per week, but the distribution of those hours throughout the week. This means that stores have sufficient staff on the floor at non-overtime pay rates when needed on Bank Holidays and evenings, and were not overstaffed in quiet periods.

Staff retention rate

It is a well-known equation: happy employees lead to happy customers – which means a thriving business! But employee attrition is severely counterproductive to this equation. Recruiting and training a new employee costs huge resources in terms of money and time, though retaining an existing employee is usually much cheaper. Moreover, especially in a small place like Gibraltar, employees hold the key to healthy one-to-one relationships with customers. So losing an employee can possibly lead to lost customers!

Gross margin

Profit margin is an obvious metric, but store managers can’t overlook the importance of knowing how much money they are actually earning after deducting the costs of goods sold. Additionally, it allows them to determine if their sales are costing more than they’re making. That way, they could know exactly how to adjust store overall operational costs and prices of items.

Inventory metrics:

Number of SKUs

A key driver of complexity in a retail environment is the number of unique Stock Keeping Units (SKUs). Whilst offering a large number of SKUs may seem to be offering customers what they want, it adds cost to the operation. High SKU counts result in the need for larger warehouses, higher stock levels, more suppliers to manage, and more effort to maintain product availability.

Stock to Sales Ratio

This is a key statistic for measuring whether or not a shop is overstocked. If the Stock to Sales Ratio rises, and there is not an accompanying rise in sales, then the business is adding more stock without increasing sales, which will reduce its profitability. If the Stock to Sales Ratio decreases, and sales do not decrease, then there will be increased profitability. The goal is to reduce Stock to Sales Ratio as low as possible, without losing sales.

Days of supply

The number of days it would take to run out of supply if it was not replenished (inventory on hand / average daily usage). This measurement enables retailers to see how much available inventory they need in order to maintain normal operations for some period of time after a supply chain disruption occurs.

Average age of inventory

The average number of days it takes a retailer to sell a product to consumers. The older the inventory is, the more it’s costing the business. If a product’s average age of inventory exceeds 120 days, it’s normally time to drastically reduce price, consider bundling it, or use whatever means necessary to get it off the shelves.

At a time when Main Street retailers are faced with increased competition from online retailers, as well as challenges on both supply chain management and cross-border employees, there could be immense value in properly measuring and analysing retail metrics.