Any cataloger that has branched off into brick-and-mortar retailing knows that retail is a “fundamentally different kind of business, requiring different performance metrics,” says Todd Barr, vice president of retail and direct marketing services for Atlanta-based consulting firm Kurt Salmon Associates.
But just which metrics are most important in determining a store’s viability? Rob Garf, senior client research analyst for Boston-based AMR Research, says that “it’s all about store contribution — what a specific store contributes to the top and bottom lines. All the other factors build up to the store contribution and justify the presence of each individual store.”
Among these other factors are sales per square foot and comparable-store sales (year-over-year sales performance), both of which are commonly cited in retail financial reports.
For Baltimore-based menswear cataloger/retailer Jos. A. Bank Clothiers, which operates 210 stores around the country, sales per square foot is the most important retail metric, followed by comp-store sales, says senior vice president of marketing Jerry DeBoer. After that, the company gauges margins, expenses, and inventory levels.
Austin, TX-based cataloger/retailer Golfsmith International, which operates 38 stores, tracks comp-store sales most closely. According to director of Internet and catalog marketing Bob Hermansen, comp-store sales are particularly useful for measuring the progress of newer stores. “We look at how long it takes for a new store to ramp up to the profitability levels of our existing stores,” he explains. “A lot of that has to do with location.”
While straightforward sales statistics are key, Barr of Kurt Salmon warns that retailers who rely on just a few major metrics could end up tallying the results of a “Going Out of Business” sale. He recommends also looking at what he calls customer-focused metrics.
The most important of these, Barr says, is demand weighted in-stock percentage — the percentage of customer demand available to be fulfilled when customers walk in the stores. “It’s the same basic idea as catalog fill rates,” he explains. “But whereas it’s easy to measure catalog fill rates, with stores you have to take some different measures because you don’t know if someone walks in your store and then doesn’t see something” that he was looking for.
It’s highly impractical — if not near impossible — to track the number of customers who enter a store and leave without buying anything. But the largest chains, such as Wal-Mart and Sears, use store inventory management systems to help them monitor demand for specific products.
Minding the store
Smaller retailers can use a traffic counting device — “electric eyes” or video camera systems from customer intelligence providers such as Brickstream and ShopperTrak — to count the number of shoppers entering a store in a given time period, “typically 15-minute segments,” Barr says.
Then using a point-of-sale (POS) system, retailers can track the number of customer transactions processed during the same time periods. “You’re finding out what percentage of people walk into a store with the ability and intent to consider a purchase vs. those who actually do so,” Barr says.
Retailers can then establish target conversion rates depending on the size and scope of the store, not to mention the type of merchandise sold. For instance, Barr says, grocery and convenience stores theoretically should draw 100% target conversion rates. Jewelry stores, however, “would be doing very well to hit conversion rates of 15%-20%,” he says. Overall, 25%-35% targeted conversion rates are good to shoot for among mall specialty stores. Within a store chain, targets can be set by comparing conversion rates of similar stores with the same local demographics, competition profiles, and venue configurations, Barr adds.
The POS system can also help you monitor stock levels for each product you carry, enabling you to gauge demand. “You can know precisely when each SKU in the store breaks stock [sells out], the exact time,” Barr says. “So if you know the demand characteristics of each SKU on a weekly basis, you can measure the combined effect across all SKUs and come up with a demand weighted in-stock percentage across a given time period.”
Another metric to track is payroll as a percentage of sales (see “The Payroll Percentage” below right). Again, the benchmarks vary by type of store.
Not every element of success is easily measurable, of course. “Brand identity is difficult to measure, but clearly important,” says AMR Research’s Garf. “For instance, retailers love when sales are boosted by discounts. But on the other hand, discounts can tarnish brand identity because they’re seen as lower end.”
The complete store metric, according to Garf, “is like any other P&L” for any given company. “You balance how much you can sell and at which margin you can sell it at vs. your expenses, and they must balance each other out,” he says.
Indeed, mailers should remember standard business-school practices, says Cathy Fultineer, senior vice president/general manager for the Harry and David store division of Medford, OR-based Bear Creek Corp. “Understand your capital,” she says, “and the cash flow necessary to provide the service and selection to acquire and delight customers, and the profit performance needed to develop an ongoing concern.”
The Payroll Percentage
|Type of retailer||Payroll as % of sales|
|Computers (custom assembly)||9.9|
|Confectionery and nuts||15.5|
|Hobby, toys, and games||9.5|
|Nursery and garden centers||10.0|
|Source: Ecometry research and information gathered from various sources, including the U.S. Economic Census, the Newspaper Association Of America, and the Internet.|