Retailers Are Measuring Stores All Wrong
In reflecting on the past several weeks of conference travel, I find a theme coming to the fore over and over again: metrics and measurements. And particular focus on metrics for stores.
Probably the number one question I get asked is “how should stores be compensated for online sales?” – particularly when we’re talking about a situation where online captures the order but stores fulfill it, or vice versa, where the store captures the order but online fulfills it.
The intent in asking this question is good: we want everyone to get credit for participating in meeting customer demand, whether that is in engaging the customer to capture the order, or ultimately fulfilling it. But retailers are asking this question for a bad reason: because they’re trying to conform new processes to old ways of measuring things.
This is one of the biggest problems with stores today. A store is a box. Therefore, it has solidly defined boundaries around it that tempt people into wanting to measure the box as if that box has a value that matches up to the box itself. If I’m sending product and labor into that box, and customer come into that box, then I expect sales to be the result I measure out the other side.
It’s really hard to get away from sales as a measure for store success. It’s not just that people want to look at stores as mini P&L statements that stand on their own, as if they were their own businesses. And let’s pause on that idea for a moment: the whole value of chain stores is that a chain, with all of its stores together, is more powerful than a bunch of independent stores. So why is your first instinct to measure the store as if it was a standalone business? That defies why it is part of a chain to begin with.
But back to the main idea: whether it’s reasonable or not to expect a store to deliver profit all on its own, people also have an expectation that the main measurement for stores is to “sell stuff.” I hear the wheeze all the time: “Well, 90% of transactions still happen in stores.” This expectation comes from the fact that the distance between consumer and their ability to achieve instant gratification is essentially zero. As long as the item is in stock, the retailer should have an expectation that they will sell it. Therefore, the main measure of store success is sales. And particularly year-over-year sales.
This is definitely a valuable measure, and I’m not going to argue that it should be binned just because “digital changes everything” or something like that. But I will argue that it is completely the wrong measure for stores. First, it’s a rear-view mirror kind of measure. It tells you an outcome, which can only be told after the fact, and it tells you nothing about why you did or did not achieve that outcome.
It’s more important for stores to focus on leading indicators, especially when they are indicators that can be influenced. If sales are off, you don’t just run out to the sales floor and tell store associates, “Sell more stuff, dammit!” (Or actually, I know there are retailers who do actually do that, but that’s not exactly motivating, especially when store associates are outgunned and outclassed by consumers armed with smartphones.
What leading indicators would I recommend? Easy:
I’m not a baseball fan, but I am hockey fan: you can’t score any goals if you have no shots on goal. Similarly, you can’t sell more stuff if there are no people in the store. Retailers have had a traffic problem for a long time, starting with the Great Recession and continuing the struggle from there.
You could argue that it is also a lagging indicator – it is an outcome of activities designed to drive people to stores. But it’s one that can easily be broken down to understand where traffic is coming from and whether one source of traffic is trending up or down to explain success or failure in hitting a traffic goal.
Sales per engagement-minute spent.
I love this metric because it captures a lot of things, and it can be used to drive a lot of decisions. If a store associate spends time helping a customer, does that deliver a transaction? How many minutes did they spend to get that transaction? You might think that the longer a store employee spends with a customer, the better the sales. But actually, there is a point of diminishing marginal returns in there somewhere.
In an omnichannel world, retailers aren’t thinking about this metric nearly enough. Note I didn’t call it “associate-minute spent.” I called it engagement-minutes. If you only look at employees, you can sell yourself short. Think of it as the same attribution problem of online – you can’t have a last click if you have no first click, so you can’t kill first click budget just because it doesn’t immediately deliver sales. Similarly, you don’t want to discount store employee time spent on a customer who then goes home and buys it from you online. That online sale might not have happened if the store associate hadn’t spent time in the store with that customer.
Some retailers have invested a lot in the associate-minute metric, trying to understand what is the optimal amount of time a store associate should spend with a customer to maximize sales opportunities. But most of the implementations I’ve seen have focused only within the store interaction. What about the amount of time the employee spent with the customer who goes home and buys it? What about the amount of time the customer spent at home researching before they came into the store? What about the amount of time the employee spend fulfilling the order?
There is a point where customer engagement leads to more sales. But there is also a point where it leads to diminishing returns. How much time do your customers spend engaging with you, and at what point to you hit that wall of diminishing returns? What roles do stores play in those engagement minutes?
This metric also enables a breakdown to identify causal factors. If an employee is spending a lot of time with customers but not selling much, they need some sales training help. If a store is getting a lot of traffic and employees are spending less and less time with customers, they need sales help. If a store is spending more and more time fulfilling orders instead of helping the customers who walk through the door, they need more fulfillment staff. Where are the engagement minutes coming from, and where are they delivering value vs. detracting from value?
The Bottom Line
Traffic and sales per engagement-minutes put a lot more levers in your hands for driving store results than just comp sales. And it also starts redefining the store’s role – so that you can expand your recognition of the value delivered to consumers. It’s not just about capturing the transaction in a store. It’s about serving customers. Measuring comp sales completely ignores all that other value. In a world where the transaction can pretty much happen anywhere, stores need to be able to deliver a heck of a lot more than just transactions – and measurements should reflect that.