Performance on traffic: the key retail ratio

Furniture World Magazine

You're a well-run retail operation. The latest computer technology supplies you with an the facts you need to analyze how well you did last week or last year in sales, markdowns, inventory management, profit, etc. The key word is did. What your computers can't tell you is what you might have done and could do. If you want to make significant changes in your results, you need to change significantly the way you look at the store. You need to maximize Performance on Traffic (closing ratio or sales to potential sales). First step toward optimizing POT is to get your facts straight. You must know what your traffic actually is, and what your Performance is, i.e. what percentage of the shoppers who walk into your store get sold by your staff and become buyers. The unsold potential growth. It could be enormous. Many retail stores in North America use traffic counters. Unfortunately, few counters suppliers offer their customers any guidance on what to do with the numbers (so 1,000 people came in Saturday morning, 200 Tuesday morning - so what?). To answer "so what", put the traffic figures together with your records of sales, average sales in dollars, and staff counts for the appropriate periods. When you analyze those four items - traffic, percentage sold, average sale, and total sales - you have taken the first step toward making the Retail Equation the guiding principle of your store, and the means whereby you control your destiny. The Retail Equation states: Traffic X % sold X average $ sale =$ sales Increased sales can only be realized by increasing one of the first three elements. Traffic is created for your stores primarily by head office functions such as location, advertising, windows, inventory, and displays. Average sale is determined primarily by head office buying and pricing practices (although it is obviously further influenced by good salespeople). Percentage sold -closing ratio - is the factor which is controllable at store level. It is commonly less than 20%, meaning there is potential to be 80% more effective. Closing ratio (POT) is key to retail success because it can be most readily and immediately influenced. Closing ratio depends partly on quantity of service -he number of staff available to serve each customer, or customer:staff ratio (the lower the ratio, the higher the level of potential service). Quality of service is reflected in the average number of transactions per staff person - the more they sell, the better they are servicing your customers, and the higher their contribution to the ultimate sales figure. Regular analysis of store traffic reports generated by the counter will reveal that traffic flows and buys in predictable patterns. This means that regardless of the time of the year and of its actual numbers, traffic on Tuesday morning or Thursday afternoon or Friday lunch time will consistently measure at a similar percentage of the weekly total traffic (percentages can be affected by special daily promotions). It also means that the percentage of shoppers who become purchasers (the closing ratio) is, all things being equal, also predictable. Some time periods attract a greater percentage of browsers, others a greater percentage of people determined to buy. The patterns vary by store, by location, by commodity, but once established by analysis of the data, they are predictable within very close parameters for any individual store. Closing ratio can be improved by the store manager often very simply by staffing up (increasing the customer:staff ratio) on those periods when history shows traffic is at its highest as a percentage of weekly traffic and buyers are at their highest as a percentage of weekly average closing ratio. A small investment in additional staff can pay a major return in improved closing ratio and higher sales. (It is also important to ensure the most and the best staff are actually on the floor during those periods, not cleaning up displays or counting stock in the back room.) You are now using traffic counting as a forecasting tool. When you have good records over a reasonable period of time of your traffic patterns and closing ratios, you can begin to allocate your staff to make the most of the traffic which is already in your stores. If you are selling to only 20 of every 100 people who enter your stores, selling to four of the 80 who didn't buy will generate a 20% increase in your sales, and you'll still be selling only 24% of your traffic. The question is not whether you can do it, but how you do it. In the longer term, you're going to want to look at enhancing the productivity of existing staff through training programs designed to help them increase their transactions per hour (closing ratios) through enhanced professionalism and their average sale through upselling and multiple selling. In fact, once you've got used to working with POT and its various elements, there are hardly any limits to the improvements you can make in your operations, working at store level alone. The system can eventually also help you analyze the effectiveness of your advertising, marketing, buying, display, and inventory management programs. But for the early days, keep it simple - use it to maximize staff effectiveness for a direct positive impact on sales. Michael Bunyar is President of St. Michael Strategies, founded in 1998 with a group of senior retail executives, experts in various facets of traffic counting and its application to improving retail operations. He can be reached at 877 – 658-1123 or mbunyar@ibm.net. Also check out the St. Michael Web site at www. storetraffic. com for further information on the company's services and free articles of importance to North American retailers, on related operational matters.