You Need to Change the Way You Measure Retail Performance

Introduction

Traditional retail and brand metrics and measurements, such as year-over-year growth, better known as “Comparable Store Sales” or ‘Comps, ” are becoming obsolete in today’s fast-changing digital retail environment. COVID-19 has accelerated this obsolescence. This article will help you understand the reasons for this change in retail KPIs and the options you might have instead.

The “Comp Store” metric has become irrelevant. What was once the gold standard in benchmarking retail performance, has now been rendered moot. Many retailers, brands, and industry know-it-alls might still grasp this favored measurement in the long term. However, they might not be the most suitable tools for the next three years due to the changes related to COVID-19.

Following 5 months of closures in most places in the country, retailers that majorly depended on their brick-and-mortar operations to drive most of their revenue are all facing and will face new challenges. They will need to find new ways to measure success in the post-pandemic environment, provided that there is a vaccine in the immediate future 4-6 months, and we get back to some semblance of normalcy.

As the COVID-19 virus adversely impacted retail on a broad scale, It is impossible to compare performance this year with the last year. Most industries associated with the retail supply chain felt the impact globally, whether they are Suppliers, Manufacturers, Logistics Vendors, Payment Solution Providers, Real Estate, or others. Even eCommerce retailers open for more than a year cannot rely on comps confidently, as consumers shift shopping behaviors to satisfy their needs and wants.

Next year, we will be looking at massive comps versus this year, and we will need to resist the urge to celebrate the performance, as it is going to be compared to the pandemic-induced low base this year. Two years from now, we will be looking at comparable sales results up against the artificially inflated comps next year.



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The Challenges with Traditional KPIs

All the traditional KPIs and metrics that we have looked at over the past few years will be out of sync such as sales, traffic, units per transaction, and conversion, and all will be inflated and misreported.

As retail continues to evolve, right before our eyes, it will be essential to adopt newer, more pointed metrics that provide more in-depth consumer insight, such as intent, which predicts future behavior. The new approach is opposed to using historical data to garner insights based on correlations in past behavior, which is tricky as pandemic shopping trends will not be an indicator of future behavior.

In addition, brands and retailers will need to understand how to value their revenue-generating strategies versus the cost of business operations differently. As consumers shop across channels with the same brand or retailer, understanding the consumer’s holistic value will be imperative. Brands and retailers cannot continue to evaluate their businesses based on separate channels of distribution when the consumer shops everywhere. We saw this shift before the outbreak of COVID-19; however, the pandemic accelerated the change in cross-over shopping and the increase in digital commerce.

In my opinion, new KPIs and developed OKR metrics based on customer behavior will become more relevant in the next few years. They might provide more insight into customer behavior and intention, which could prove more valuable to brands and retailers, as those metrics are usually more forward-looking than dependent on historical data.

New Brand and Retail Metrics

  • Customer Value
    • Profit per transaction, allocation of costs, and expenses per sale regardless of channel, which could also be channel-agnostic
    • Sales per unique customer across channels, for a period, most likely a year.
    • Engagement metrics across channels to measure customer affinity and loyalty (store visit frequency, website visit duration, average page views per visit, etc)
  • Value Creation
    • A pure linear trend line of growth over time (not comp) versus investment over the same time (This metric will help us stay relevant. Hopefully, the revenue growth line is steeper than the expense line)

Conclusion

Measuring the business year-over-year from a comparable standpoint will never go away, as we are wired to the “Comp” metric. However, as a brand or retail executive or manager, we will need to start rewiring our thinking.


Author Bio:

Paul Sklar is a consumer-centric executive with extensive experience as an Omni-Channel/DTC leader, with cross-over expertise in leading Business Development, Go-to-Market Strategy, Merchandising, Product Development, Marketing, and other Brand Building functions. Paul has led teams at Wolverine Worldwide, Ralph Lauren, Sears, Newell Brands, DeLonghi, Sharp Electronics, as well as Macy’s.

In addition, Paul launched a consulting advisory in 2019 with the mission to help start-ups and established businesses develop their go-to-market strategies and build their own brands. Paul is a graduate of Temple University, with a BBA degree in Marketing.

This is a post by a Guest Author. Disclaimer: The author’s views are entirely his or her own, and don’t necessarily reflect the opinions of ElevatIQ Inc.

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