Store

Financials and Control

 Key performance indicators (KPIs) provide ways to measure retail store’s
performance in a meaningful way and provide information to help maintain a
competitive advantage for retail operation.
Store Traffic

One of the simplest KPIs to measure is also one of the most important: the number of
potential customers coming through the doors of your retail store.

Without store traffic, people physically walking into the store, retail business can’t survive.
Tracking the amount of foot traffic the store experiences is a key indicator of how well the business is doing
in attracting customers, and it can also be used to make evaluations with other KPIs, such as gross sales.

Looking at store traffic figures year-over-year, comparing one month to the same month the previous year,
can give a quick indication of whether the business is growing.

Month-to-month declines in traffic can serve as an early warning indicator that there is a need to work on
boosting the store’s appeal.
 Why it’s important?
Store layout - Foot traffic analytics can tell which parts of the
store are getting the most and least traffic. In addition, the
data can also give an indication of where people are getting
stuck or if there are any bottlenecks disrupting visitor flow,
enabling to improve the store’s layout.

Marketing and advertising - Which store displays or

banners are bringing in the most traffic? Are window
shoppers enticed enough to actually walk into the shop?
Counting the people in the store will help answer such
questions that can improve marketing and advertising.

Staffing - By using people counters and other foot traffic tools,

one can find out the store’s peak traffic hours and make staffing
decisions accordingly. For instance, if you discover that in-store
traffic peaks at noon, you can decide to put more associates (or
your best salespeople) on the floor during this time to ensure a
healthy staff to customer ratio.
Conversion rate Why it’s important?
This KPI helps to measure the performance of
This KPI helps you measure the
various in-store components, including performance of various in-store
customer service, merchandising, and more. components, including customer
service, merchandising, shopper
experience, and more.
Conversion rate is the percentage of customers
who bought from you. You can find it by For instance, a high amount of
dividing the number of sales by gross traffic. foot traffic with a low conversion
rate could indicate that while
Your store got 100 visits and 45 of those
you’re doing a good job bringing
shoppers completed a purchase. people into your store, shoppers
This means your store’s conversion rate is 45%. aren’t quite connecting with your
brand once they’re inside.

With that in mind, you can then

figure out the reasons behind the
low conversion rate and
implement changes, such as re-
training your staff, improving
your merchandise, finding ways
to provide a better in-store
experience, and more.
Sale count
The number of transactions is a fundamental Why it’s important?
metric that tells you how many sales were
made in a given time period. You can use it to evaluate in-store
You can easily find this by looking at your POS marketing strategies, customer
data. service, customer experience,
and more.

Sale count (and sales in general),

when tracked according to
specific time periods, is also a
good indicator of how busy your
store is, and can help you make
staffing decisions.
Average Transaction Value / Basket Value.
The average dollar amount per transaction can Why it’s important?
give a macro view of how much people are
spending as well as the types and quantity of Calculating average customer spend can help
items they buy. you get a better profile of your customers
and their spending habits, and you can then
Is calculated by dividing total revenue by use that information to fine tune your sales
and marketing efforts.
number of transactions.
A high dollar amount could mean that
shoppers are purchasing your more
expensive products or they’re buying larger
quantities.

You could derive a number of insights and

action steps from this KPI.

For instance, having a low average dollar per

transaction could indicate that you need to
rethink your pricing.

Or, it could mean that you have to

implement new sales tactics such as upsells,
bundles, or other offers to get shoppers to
spend more.
Number of units per transaction

An alternative metric to average customer spend is the average number of items per
purchase.

This may be a more meaningful analytical measurement for your store if it sells mostly
lower-cost items, such as those found in a dollar store, as opposed to big-ticket items such
as furniture.

If your analysis shows customers buying fewer items per shopping trip, you can then
analyze your inventory to see if there are specific items where sales have dropped off, or if
your customers are just generally spending less, which can be the result of a general
economic turndown.

Average customer spend and average items per purchase can also tell how effective the
store personnel are at encouraging customers to buy.

Doing a shift-by-shift analysis, the retailer may discover a star employee who successfully
increases sales whenever they’re working.
Example

Sl. No. Product Rate Qty Amount

1 Tshirt 1000 2 2000
Shirt 2000 2 4000
Total 4 6000

Sl. No. Product Rate Qty Amount

2 Tshirt 1000 2 2000
Pants 3000 2 6000
Skirt 1500 4 8000
Total 8 16000

Total Avg. Basket Avg. Units Per

Total No. of Bills in the Total Qty Amount Value Transaction
day (A) (B) ( C ) (C/A) (B/A)
2 12 22000 11000 6
Total sales

The total sales metric, otherwise known as gross sales, is arguably the most important
metric for retailers. It allows them to answer the question “How well are my products
selling?”.

It also enables retailers to project future sales — something which is especially important
to small retailers, who often look to secure investment in the early stages of their
business venture.

When trying to secure an investment, small retailers need to show their sales
performance so investors can see whether the offering being sold is market viable and
whether the sales trends are increasing or declining.
Profit Margins

The net profit margin, the bottom-line profitability of the business, is still the most basic
indicator of a store’s financial health.

Going beyond just looking at net margin can help spot ways to increase that net margin
figure.

Analyzing across-the-board profit margins, including gross margin and operating margin,
along with review of net margin.

If your net margin is declining, looking at your gross margin and operating margin can help
you identify the cause of lost profits.

If, for example, your analysis shows that your operating margin declined significantly, then
increased overhead expenses are the source of the problem.

You can hone in on an analysis of your expenses and try to find places to cut costs and
restore your net profitability to a healthier figure.

Tracking KPIs gives you solid facts to work with that can help you in analyzing every aspect
of your business and keep it performing at maximum efficiency.
Gross margin
Unlike total sales which only shows the revenue stream from the products that are sold,
gross margin measures the profitability of the inventory. This metric doesn’t include costs
outside of inventory, such as operating costs such as wages, rent or marketing campaigns.
This metric is important because it allows the retailer to see how well their inventory is
performing.
To calculate gross margin, you need to subtract the total cost of goods from sales
generated and then divide this number by your total sales to get the gross margin
percentage. Here’s the formula you need:
Net margin

Net margin (also called profit margin), indicates the overall profitability of the business.
You need to track this metric to be able to make future decisions based on positive
revenue, or the cash actually available to you minus all your expenses.

Net margin not only takes into consideration inventory costs but also all your outgoing
costs we mentioned earlier, such as wages, rent and other operating costs.
Stock Turn

Stock turn gives the information the retailer Why it’s important?
needs to make critical inventory decisions.
Inventory turnover measures the rate at which How often should you re-order products?
stock is sold. Are you stocking too much or not enough
merchandise?

This metric enables you to have a better

Calculate stock turn using the formula:
handle on your inventory so you can make
Cost of Goods Sold / Average Inventory
smarter purchasing decisions, keep
merchandise moving, and sell more of the
Let’s say an apparel store’s average inventory is products your customers want.
$25,000 and the cost of goods it sold in a 12-month
period is $100,000. Its inventory turnover is 4.0 and You can also calculate it to see how your
this means that the store sold out of its inventory store stacks up compared to others in your
four times that year. industry.
Product returns
A high product return rate could indicate
problems in merchandise quality, customer
service, or even marketing.

Product returns tells you the percentage of product

return. You can calculate this metric by dividing the
number of returns by the number of items sold, then
multiplying it by 100 to get the percentage.

If you sold 120 widgets and 5 of them were later

returned, the product return rate is 4.17%.

Why it’s important?

People could be returning your products

because they’re having a hard time figuring
it out and your customer service reps need
to do a better job educating them.

Or perhaps you need to tweak the text in

your packaging or marketing messages and
be clearer when communicating who the
product is for (and who it’s NOT for.)
 Sell through percentage

The sell through percentages are used to Why it’s important?

evaluate product performance.
This metric also helps you make decisions on
Sell through is the percentage of units sold which items should be put on sale, returned
versus the number of units that were available to the manufacturer, or whether or not you
to be sold. should re-order a particular product.

Number of Units Sold / Beginning Inventory x 100

Let’s say a bookstore received 500 copies of a thriller novel from the publisher, and sold 95 books
after a month. The book’s sell through percentage is 19%.
Sales per Square Foot

This key performance indicator is a good Why it’s important?

measure of how efficient you are with the use
of sales space and assets. This KPI is a good indicator of
how efficient you are with the
use of sales space and assets.
Divide your sales by the store’s total square
feet of sales space. It can help you determine which
store layouts or locations are
$1,000,000 / 1,800 sq. ft. = $555 per square ft most profitable, and you can use
it to make inventory, marketing,
and layout decisions.
Sales per Linear Foot of Shelf Space
A retail store with wall units and other shelf space may want to
use sales per linear foot of shelf space to determine a product or
product category's allotment of space.

Total Net Sales ÷ Linear Feet of Shelving = Sales per Linear Foot

Sales by Department or Category

Retailers selling various categories of products will find the sales by department tool
useful in comparing product categories within a store. For example, a woman's clothing
store can see how the sales of the lingerie department compared with the rest of the
store's sales.

Category's Total Net Sales ÷ Store's Total Net Sales = Category's % of Total Store Sales
Sales per Employee
When factoring sales per employee, retailers need to take into consideration whether the
store has full-time or part-time workers.

Convert the hours worked by part-time employees during the period to an equivalent
number of full-time workers.

This form of measuring productivity is an excellent tool for determining the number of
sales a business needs to generate when increasing staffing levels.

Net Sales ÷ Number of Employees = Sales per Employee

Traditional retail metrics have worn out their usefulness
While some focus on same-store sales is helpful, for most
omni-channel retailers the historical relationship between
store traffic and sales rung up in that location is
irretrievably broken.

For many retailers, traffic growth will never return, yet

conversion and transaction value tend to be rising. This is
often because customers are more intentional in their
store visits, having done their research first in a digital
channel.
Yet at the same time, customers may traffic
a store for research purposes - only to buy
the product later online.

As BOPIS (buy online pick-up in store)

expands and more retailers take online
returns at their brick & mortar locations,
the store plays a critical role in overall
volume and operating efficiency, even
though the store may not get direct credit
for improving the customer experience and
overall economics.
Thinking about e-commerce as a distinct concept is similarly unhelpful.

The impact of a retailer’s website and mobile presence on store performance - plus traffic
and marketing engagement - is far greater than converting customers to online
transactions.

Focusing entirely on online shopping centric measurements like conversion rates and
average order value greatly undervalues digital’s role in brick & mortar success.
Too many companies measure online as a separate P&L and push siloed and isolated
performance measures that cause brands to underinvest.

It’s therefore not at all surprising that retailers that have failed to evolve are also laggards in
omni-channel performance and are desperately trying to catch up.

Further exacerbating these issues is the tendency for many retailers to manage their store
organization and digital operations as distinct entities.

Siloed organizations, data, performance metrics and financial incentives create huge
barriers to becoming customer-centric and keeping pace with evolving customer dynamics.
New metrics are needed to better reflect retail’s new reality

Same (comparable) Same (comparable) Customer journey

trade area sales-growth customer segment growth performance levers
 Select group of new metrics can shed light on what’s really going on in a digital-first,
omni-channel world.

Same (comparable) trade area sales-growth

Given the growing influence of online and the store’s role in supporting e-commerce,
combined year-over-year sales growth in a defined store trade area best measures the
overall health of the brand and whether share is being gained or not on a location by
location basis (as well as for the chain overall). It may well be the case that sales literally
rung in a brick & mortar location may be down a bit, but the overall market area may be
up given the strength in online shopping, assisted by a visit to the store.

Same (comparable) customer segment growth

Actionable customer segmentation is at the heart of being more customer-centric and

companies that are committed to this path should have specific acquisition, growth and
retention goals for each of its major customer cohorts (or personas), in total and by sales
channel. Being able to dissect performance by stage of engagement, by channel, and
overall is enormously beneficial in unpacking overall performance drivers.
Customer journey performance levers

While this will vary depending upon category dynamics, retailers need to map out the
customer journeys for key customer segments and major purchase occasions to gauge
performance at key moments that matter across the journey.

This needs to be married with an understanding of places where retailers could eliminate
friction or amplify performance to be truly relevant and remarkable.
 Class Activity

Compare and contrast the major differences between a successful versus poorly run
retail operation for an online retailer in the fashion sector on the basis of :

1. Store Policies
2. Promotions
3. Loyalty Program
4. Consumer Engagement

• What is the more successful retailer doing differently?

• Can it be copied?
• What advice can be given to the less successful retailer?

Keep the presentation as visual as possible. Text only as bullet points.

End of Session