LOOK FORWARD TO IMPROVE PERFORMANCE!
Consider using the kinds of forward- looking pipeline metrics that
publicly traded companies use to report guidance about strategies, tactics
and metrics that drive future performance.
I’ve heard a fair amount of bellyaching in the furniture industry
lately—mostly blanket statements about slow traffic and sales numbers being
way down from last year. Retailers have also asked me, “What are you seeing,
and why are we not able to bring in customers like we used to?”
The Traffic Culprit
Furniture retailers are closely monitoring sales numbers produced from close
rate, average ticket and foot traffic. For the most part, they find the
first two metrics (close rate and average sale) to be similar to those from
2023. Based on this, most deduce that lower furniture sales are entirely
caused by slower traffic resulting from economic conditions largely beyond
their control.
Although sales in the furniture industry are mostly down, some retail
operations are excelling and planting seeds for future growth.
Forward-Looking Metrics
I have a different opinion regarding what’s happening with sales performance
in brick-and-mortar operations. In general, the furniture retailers that
outperform their competition focus on the future. Those whose performance
fluctuates with the economy generally look to the past to guide their
decision making by using the standard sales formula (in-store close rate x
average sale x in-store traffic = total written sales). This metric is a
backward facing performance indicator. Retailers who believe that the KPI
results of a past month predict what a future month’s results will be have
unwittingly added hope and luck into their success equation.
“If you see a consistent decline in open sales, expect poor financial
performance and declining cash flow to follow.”
I recently listened to some conference calls held by publicly traded
furniture operations, including one hosted by RH (Google: RH Investor
Relations March 27, 2024). In addition to reporting on what has happened
over the past year, RH gave “guidance” about what they believe will happen.
Guidance includes information on the strategy, tactics and metrics that will
drive future performance. It sets strategic and tactical direction. I
believe every furniture business should look more toward the future, no
matter its size. What follows are several forward-looking indicators that
will help drive your performance.
Sales Pipeline
In the March/April edition of Furniture World (visit
www.furninfo.com/authors/david- mcmahon/6), I introduced Sales Pipeline
Management, a concept seldom used in the furniture industry. However, it is
one of the most important high-ticket sales metrics in industries where
consumers research purchases before buying.
A few progressive merchants track the names of the seven out of ten
customers who don’t make a purchase, but even fewer do anything impactful
with this information. The central point that I would like Furniture World
readers to understand is that those 70% are not necessarily lost. For
example, if an up does not buy right away, but there is agreed-upon
follow-up, they will be moved on to the next pipeline stage: not yet a win,
but still a prospect. Prospects should not be closed out of a sales pipeline until they: buy, become unresponsive, or are no longer in the market to buy.
A pipeline is a group of prospects who remain in the market to buy but have
not made a final decision. These are often shoppers planning bigger projects
that include multiple home furnishings items. Coincidentally, RH mentioned
during their recent conference call that selling “spaces” instead of selling
“products” will drive their future revenue growth. Selling spaces leads to
bigger tickets but requires more sales professionalism and positive retail
experiences.
To get an idea of what future sales might be, you can measure the sales
pipeline broken down by store and by sales associate. You should also track
the approximate dollar amount for each prospect and estimate when deals will
close. The traditional industry close rate formula measures past sales, but
the pipeline formula marks customers as a “no-sale” until they are no longer
in the market to purchase. By starting to track and use a digital pipeline
for future business, you will get an idea of how much you need in your
pipeline to achieve targeted sales numbers. New traffic you close
immediately is constantly streaming into your stores. The portion of sales
you do not close immediately but remain in your follow-up queue represents
your pipeline opportunity for future traffic (assuming that you provide your
prospects with excellent retail experiences).
Booked Appointments
Booked time with prospects results in near-certain sales and significantly
higher average tickets per customer. Thus, to predict business coming your
way soon, you should look at the number of in-home and in-store appointments
scheduled per salesperson. Companies focusing on scheduling appointments
benefit from much higher weekday sales than those relying on walk-in traffic
with normal close rates and average tickets. Remember that with this and any
other metric, if it’s the first time you’ve tracked it, monitor it first to
develop a baseline. After that, take appropriate actions to improve and then
raise your bar.
Pending Carts / Open Quotes
A pending cart is a list of items a prospect and salesperson build prior to
finalizing a purchase. Technology can help salespeople develop product wish
lists and fill carts using mobile phones to enable more efficient use of
shoppers’ time. Once a cart is nearly finalized, the next step is often to
create a formal quote or close the sale. Either way, if shoppers who are not
ready to buy (today) have pending carts and formal quotes it leads to better
relationships, more professional experiences and a deeper understanding of
what future sales are likely to be.
Website Traffic
People most often shop on furniture websites before visiting physical
stores. Website traffic matches back to actual sales. It’s a correlation
I’ve witnessed firsthand with many of our clients. Integrated systems make
it easy to track current customers who visit retailer’s websites before
visiting in-store and buying something. That’s why it makes sense to keep
track of the visitors (known and unknown) to your website, find out what
they are clicking on and where they are referred from. This can be a
precursor to in-store visits, a portion of which will result in sales.
Revenue Concentration
Revenue concentration is the portion of sales originating from: repeat
clients; customers who spend the most; or belong to certain market segments.
If your sales associates are currently working with more of these VIP
clients it bodes well for future sales. If you discover they are working
with fewer higher-spending clients, your next revenue period may be
lackluster.
“Building the number of pending carts and quotes with customers who are not
ready to buy (today) can lead to better relationships, more professional
experiences and a deeper understanding of what future sales are likely to
be.”
Open Sales
The open sales metric is a valuable measure for home furnishings retailers.
Instead of only measuring written business, measuring open sales and quotes
represents the pipeline for delivered business. Keeping track of open sales
overall by store and by salesperson will give you a good idea of how your
financial picture will shape up in the future. Open sales numbers are also
of interest to salespeople who are paid on delivered commissions. In retail
home furnishings, a large portion of cash flow comes from customer deposits,
which are directly related to open sales. So, if you deliver at the same
clip or near capacity, you will produce better cash flow and delivered sales
if your open sales and quote pipeline grows. Alternatively, if you see a
consistent decline in open sales, expect poor financial performance and
declining cash flow to follow.
Cancellations / Revenue Churn
Cancellations of written sales, also known as revenue churn, kills cash flow
and lowers financial performance. For this reason, it makes sense to track
cancellations, understand why they happen, and implement processes that will
lessen revenue churn.
Growth Initiatives
Ongoing investment in training and systems to improve future performance
should be a part of every company’s business model. Allocate sufficient
funds to provide the best customer experience and give your employees every
available tool and technique to grow your business. Many furniture companies
choose to invest in their people and processes ONLY in good economic times.
That may seem prudent to some; however, when recovery comes, as it always
does, businesses that have substandard systems and processes reap lackluster
rewards compared to their competitors that invest in continuous improvement.
Those that halt investment in tough times are forced to play catch-up with
those businesses that stay the course, lead, and invest for their future.
If you have ongoing growth initiatives, strategies and action plans in
place, you are more likely to achieve excellent results than if you solely
look at past performance.
Diminishing Ad Returns
Advertising tends to be more effective in booming real estate markets and
low-interest rate environments. It’s necessary at all times; however, it can
reach a point of diminishing returns, especially in down markets, if geared
only toward driving immediate in-store traffic. As an analogy, when more
fish are in the sea, the net will catch more. When fewer fish are out there,
you can throw the net repeatedly and not see immediate results. However,
marketing for the future can help you determine what to expect regarding
future traffic and sales. That’s why it’s essential in down markets for
smart marketing people to find innovative ways to capture attention and
leverage existing customers by providing better experiences. Consider a
scalpel—segmented marketing approach based on relevancy versus a mass market
blast approach in slower economic times. Remember that word of mouth is one
of the most powerful forms of retail advertising.
“It’s essential in down markets to engage with smart marketing people to
find innovative ways to capture attention and leverage existing customers by
providing better experiences.”
Conclusion
Looking at past performance using the standard sales equation is important.
However, it does not determine future results. Focusing only on what already
happened will have the unfortunate effect of making your business more
reliant on economic factors beyond your control. Three things that are NOT
part of any performance equation are hope, complaint, and inaction. I advise
you to spend some of your time looking to the future to provide guidance for
where you want to go. For inspiration, look to companies like RH and other
publicly traded businesses that report to their shareholders. By setting
metrics, strategies, and tactics for the future, you will increase the
likelihood that your company’s future will be aligned with your performance
goals.