Retail

The Retail Equation
In every store, every day, the sales made can be expressed mathematically as:

Traffic x Sales Conversion Rate x Average Transaction Value = Sales

Traditionally, retailers measure and show the equation to be:

Transaction Count x Average Transaction Value = Sales

Transaction count is a blend between Traffic and Sales Conversion Rate. They can rise and fall independently. If, for example, the store receives a 10% increase in traffic from one period to the next, and a 10% decline in it's ability to close sales, there will be no net change, but in fact, there would be two important things happening that the retailer would be blind to.

First, there would be a 10% improvement in the store's ability to attract customers. The marketing department is doing a great job, which is being hidden. An opportunity to duplicate these efforts could easily be lost.
Secondly, there is a decline in productivity, which, even if it were somehow noticed, would be blamed on a lack of traffic. There is an opportunity to improve productivity through setting objectives, better discipline, adjustments in staff scheduling, or other actions.

Specific Determination of Sales Potential

How much traffic do you need? Chances are, if you are located in a shopping mall, your stores sell to 20% or less of their traffic. Are you capable of selling 25% of your traffic? 30%? More? Without traffic counts, you have no way to see how well you are capitalising on your opportunities; whether or not you are more effective than a prior period, or to another store or group of stores.

Chances are that in most stores, if you could close sales on just 2 more of every hundred people that enter your store, your sales increases will be huge. Further adjustments to advertising and merchandising could further improve your potential… all with the measurement of traffic being the catalyst for change.

Traffic Flows and Buys in Predictable Patterns

Traffic flows and buys in predictable patterns. Understanding these patterns, what impacts the patterns, (e.g. Holiday Shopping, Competition, Advertising, Mall Events, etc.) and what the impact on traffic is will help you in almost every area of store operations… from staffing, to inventory levels, sales promotion, and more.

Staff Scheduling

Understanding your store traffic enables you to staff using a relatively consistent ratio of staff to customers. Customers deserve and expect to be able to find help in your stores, even if you are self-serve. In most stores, the ration of staff to shoppers fluctuates wildly during the week, usually at extreme highs during the highest traffic periods, and during the periods when people are most apt to buy. Aligning staffing levels to more closely follow traffic patterns will enable better service availability, which almost always translates to greater sales. It also creates more consistent sales per staff hour ratio.

Measure Advertising Effectiveness

Advertising by itself can do one thing for your store… generate traffic. In many cases, if a promotion is "successful", the advertising takes the credit. There are many other factors, including staffing, pricing, merchandising, internal signage, and others. Being able to isolate the specific contribution of advertising will make your marketing department or advertising agency accountable to deliver an increase in traffic, and for your stores to do more with that traffic. It enables you to see just how much it costs for each new person you attract to the store, and how much of the promotion's success or failure is as a result of the media you buy.

Eliminate Excuses

"There was NO traffic!" How many times have you cringed when you heard this? Once you begin to measure traffic, this excuse, along with a number of others are eliminated. Either the traffic was there in the numbers you expected, or they weren't. You can compare both traffic and performance independently. If there was a change in traffic, it can be identified, in specific terms.

More Accurate Budgeting

Primarily, using the retail equation, above, there are three basic areas of accountability:

Traffic - Marketing,
Sales Conversion Rate - Selling Floor / Store
Average Transaction Value - Merchandising

Once you have comparative figures from a prior period, you can go to each of these three areas of opportunity, and get their input as to what they can deliver, and at what cost. From there you multiply the three factors for your budget. With a plan based on specific targets for traffic, Sales Conversion Rate and average sale, you can easily make your budget based on your performance. The sales become a result of your actions, not the cause of them.

Open "Blind-Spots" in Conventional Retail Reporting

Many currently retail indicators and statistics can cause blind spots. For example, Average Transaction Value can remain level even with a change in traffic volume. Transaction count can remain unchanged, even with a significant change in store traffic volume. Sales may go up, with no change in traffic volume. In each case, adding traffic related ratios:

Traffic, Sales Conversion Rate, Performance on Traffic, Customer / Staff Ratio

Will make the results more meaningful, and will tell a better story of what is REALLY happening in the store.

Make Faster, More Accurate Decisions

Traffic counts enable you to know with certainty what is happening in the store. If sales are down, as a result of fewer transactions, one might look to increasing traffic as the solution. If, however, the reduction of sales comes from a reduction in the store's ability to close sales, then drawing more people into the store is counter-productive, and a very expensive "solution". With comparative traffic counts, you will see EXACTLY where the problems or opportunities lie, and can react faster and more certainly.