Retail Metrics: Out With The Old, In With The New

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BDO

“Retail bankruptcies on the rise.”

“Department stores report sluggish holiday sales.”

“Mall traffic down.”

What’s going on?  Are these more of the same headlines we’ve come to expect in the up-and-down world of retail?  I would argue that we’re seeing indicators of the next evolution in retail.  In short, the post-WWII era of materialistic, suburban baby boomers shopping in malls is fading, driven by three trends:

  1. The maturation of online shopping. Slower mall traffic due to increased e-comm sales and different kinds of trips (click and collect and show-rooming vs. traditional browsing and buying)
  2. Changes in middle-class shopping behaviour. As I indicated in my last article, the middle class is still out there, but they’ve shifted their spending to to discount banners, club- and off-mall stores, as well as e-commerce”
  3. Less materialistic millennials. They are choosing urban over suburban lifestyles, they will splurge on high-quality goods but also shop at discount outlets and they will watch their spending as their rents and mortgages eat up a larger share of their disposable income relative to previous generations

Yet, with these trends in full flight, retailers continue to report on their performance using metrics that are also fading in relevance.  Below are four suggestions that recognize the changing focus of physical space and the increasing importance of digital space:

Fresh Perspectives on Retail Metrics

Old: Same-store sales

New: System-wide sales and store deliveries

Rationale: This is the grand-daddy of all retail metrics.  Given the increasing importance of online sales, and the emergence of hybrid models like click and collect, physical store sales is a limiting metric.  System-wide sales is a better indicator. Yes, it’s macro, but store “deliveries” – goods crossing the exit door – is a better metric of how stores are both selling and fulfilling online sales.


Old: Sales per square foot

New: System-wide sales per square foot and store deliveries per square foot

Rationale:  Again, this is another stalwart of retail metrics, but if the purpose of stores is changing, then it makes more sense to align overall sales and individual store deliveries with the real estate required.  Retailers may even have to allocate some of their warehouse expenses to better account for the cost of their e-commerce channels.


Old: Store traffic

New (a):  Visits per customer

Rationale: Given that most shoppers today browse online before they go to the store, overall visits, including website, email brochures, and stores, is becoming a better indication of traffic.  Loyalty programs and mobile tracking allow retailers to track visits at the customer level. This is a much better way of seeing how their best customers are behaving.

New (b): Customer dwell time

Rationale: Engagement is difficult to measure and should involve customer research. A good starting point “dwell time” – a concept borrowed from operations management. Dwell time is defined as how much time customers are spending in a store.  Dwell time would directionally indicate the level of engagement with the banner, product or store staff. This likely correlates to increased store or e-comm sales.


No metrics are perfect and they are always open to interpretation depending on data sources, collection methods, etc. The generational changes happening in retail are clear. As retail business models evolve, retail metrics need to evolve with them.

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