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November 12, 2019
Some natural products retailers shudder at the thought of data while others know their numbers inside and out. But in today’s dynamic retail environment, it is more important than ever to track key performance indicators for your store and really understand what they mean. By drilling in and dissecting salient data points, you can make the changes necessary to improve your business. Here are nine KPIs that retailers should be on top of.
Basket metrics. SPINS data reports on more than 200 measures, helping retailers and brands get into granular, advanced analytics, but we also help many clients start from scratch when it comes to working with data. Taking that topline view, basket size is certainly a key metric, but taking basket metrics a step further into basket penetration sheds light on which departments, categories and items are being purchased, both separately and together. These metrics tend to be relevant for merchandising and marketing functions because they help retailers keep a pulse on the underlying drivers of trends in their business and, specifically, how customers are shopping at their stores.
Comp store sales. Baseline comp store sales—essentially same-store sales but with trends for recently opened or closed stores filtered out—is the most common measure retailers use to gauge whether their business is growing. However, there is a lot more to understand beyond that overall sales number. Decomposing dollar sales into three metrics—such as transactions (baskets), unit sales and average retail price—is especially important because it gives retailers a chance to understand their sales changes in greater granularity and react accordingly to pull the right levers. When assessing comp store sales performance, it is essential to look at this number across multiple time frames, as well as at more granular levels such as department or category.
Market share. Different retailers approach the idea of market share differently. Some compare themselves only to retailers that are similar in type to their own stores; others feel it is important to include a range of competitors to which they may be leaking customers or dollars. Measuring allows them to track against their own goals and quantify the potential opportunity gap they have to the market.
Sales per labor hour. As wages rise across the country, a result of historically low unemployment and pressure for higher wages and benefits, most retailers will struggle to keep labor as a percentage of overall sales in check. But another way to look at this is to focus on the underlying productivity of the labor force. Retailers can pay more if the workforce is more productive. Sales per labor hour is a way to look at how productive you are overall, and this can also be translated to the same measure by department. How productive are your employees in the bakery compared with the deli or meat department? How is this metric changing over time and what tasks can you eliminate, automate, etc., to improve it?
Shrink. Sales and margins can be strong, yet profitability can still suffer if shrink—the percentage of sales lost to waste, theft, spoilage, etc.—isn’t under control. Shrink begins with the ordering process (are you buying the right quantity?), storage and handling (are you properly taking care of product?), product care (are you maintaining the product at shelf?) and creativity (are you thinking through how to extend and maintain products?). Shrink will vary by department, but retailers should always view it as a silent profit killer.
Sales productivity. In the end, retail is about selling stuff. There is almost a direct correlation between retailers that drive very high sales productivity (sales per square foot) and retail success. It is also a good yardstick to gauge performance against competitors. While the average sales per square foot for a supermarket might be $400, some retailers drive more than $1,000 per square foot. Some of this is influenced by location, but it is also a result of good merchandise selection, effective merchandising, good use of space and sales productivity through pricing, promotions and displays.
Transaction count. The number of people who made a purchase allows you to understand the sales traffic going through your store. It can help you know whether you are losing or gaining paying customers over time. Transaction count is one of the most important indicators for the health of the organization, as it is critical to continue gaining more customers. If you are looking at it by day and by hour, you can schedule your employees to align with when checkout is busiest.
Promotional percentage of sales. This metric helps you understand the appeal of your sales offers and can inform item price sensitivity as well as the effectiveness of your marketing effort/spend. Promotional percentage of sales is a critical metric to measure continually as you test different promotional offers and determine the type of sales promos that are most successful with your customers at certain times of the year. It also helps test and learn which products and price points resonate with customers and is a useful strategy to show customers new products and different categories or departments within a store.
Department penetration. This KPI allows you to understand how thoroughly customers are shopping your store and which departments may need support. Are customers only grabbing one or two items in the same two departments, or are they doing the majority of their shopping with you and walking the entire store? If your department penetration is low, you can try to improve it by cross-merchandising products to entice customers to pick up extra items that complement popular products, such as placing shortcake next to strawberries. This metric helps you determine which departments are most critical to earning customer loyalty and how and when to place emphasis on different parts of the store.
Melaina Juntti is a longtime freelance journalist, copy editor and marketing professional. With nearly two decades of experience in the natural products industry, she is a frequent contributor to Nutrition Business Journal, Natural Foods Merchandiser and NewHope.com. Melaina is based in Madison, Wisconsin, and is passionate about hiking, camping, fishing and live music.
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