KPI for Retail
Retail is the most diverse industry handling widest range of products from equally large numbers of suppliers and, naturally, the highest number of customers. Keeping an eye on all the operations in retail business is crucial for seamless profitable corporate performance. Understanding customer requirements and offering them what they want and still maintaining profitability requires highly analysed information on management part to deal with ever changing market conditions quickly to beat competition
KPI in Retail helps track individual performance. They tell us about trends, behaviors, opportunities to increase performance, and they forecast the short to medium term future – enabling us to understand why and where we are heading. Statistical measurement of fundamental sales performance drivers for any retailer is a prime need. With all manner of spreadsheets, POS systems reports, Dashboards and Scorecards, Key Performance Indicators (KPI) are used to communicate the strategy of the shareholders to the individuals in the company and we employ feedback systems to report the results. It is common practice to compare what we have forecast with what has actually taken place – statistically – to make judgments, changes and plans.
Some of the areas where BI tool can be applied to Retail are Sales & Profitability Analysis, Store Operations Analysis, Customer Analysis, Merchandise Management, Inventory Management, Supplier Performance Management, Marketing and E-commerce Analysis, Market Basket Analysis, Category Management, Brand & Marketing Research, Market Share Analysis, etc.
Not all retailers employ exactly the same set of targets, but this is a selection of basic KPI’s at store level that any retailer would measure:
Sales: Annual Turnover, Basket Spend, Active Transactions, Footfall – all against LFL and budget
Loss prevention (ie, shrinkage – stockloss, cash loss)
Operational – availability, inventory integrity
Service – complaints for instance
HR Development – training, coaching, staff turnover
Variable Costs – any expense accountable to store management that may be avoidable
You can drill down for a long time into any of the above top line headings, but hope this quick answer at least gets the ball rolling.
Typical retail KPIs are things like:
-Sales Per Hour
-Average Gross Margin
-Customers per day/week
-Items per customer
There are many more, including financial or customer centric indicators that you can use once you have a grasp on the above.
KPI’s based on objective:
Customer relations skills
Company policies and procedures
Technology skills (e.g. POS Equipment)
Average lead time per order
Order entry accuracy
On time delivery to customer
% of customer claims
Delivered in full to customer
Total number of customer claims
Cost per delivery per customer
First request versus agreements
Orders delivered in full
Orders delivered on time
Accuracy of the sales forecasting
Service performance against standard criterion
Gross profit margin
Cost of goods sold (COGS)
Employee scheduled time
Employee available time
Sales compared to budget/target
Sales by period
Sales per square foot
Cost of wages
Average sale per customer/transaction
Units per customer/transaction
Conversion rate (customer into sale)
Percentage of income from return customers
Sales per hour
KPIs for Retail could be:
Sales per hour – a statistic tells us about the speed at which each individual salesperson is selling or attending to customers compared to everyone else on the shift
Average Sale – the average selling price of each individual salesperson compared to everyone else on the shift – higher averages show a greater knowledge of product as the salesperson is able to sell higher ticket items. Low statistics reveal the salesperson lacks skill in either product knowledge or effective probing.
Items Per Sale – tells us about the ability of the salesperson to add-on to a sale.
Conversion Rate – tracks how many visitors to the store are turned into customers.
Wage to Sales Ratio – compares a salesperson’s hourly wages to hourly sales. This KPI identifies your clear performers and underperformers – and their value to you.
Average sales per customer or transaction – Total sales for a given period divided by the number of customers or transactions for the same period
Sales per square foot / meter – Actual sales for a given period divided by the total floor area (in sq.ft. or meters) of the store. There are variants of this indicator in terms of sales per square foot of merchandisable area of choice (like walls and display units)
percentage (%) of total stock that is not displayed to customers – most applicable in certain retail sectors
Inventory Sales per selling hour – Actual sales for the store divided by the number of selling hours during the same period
Sales per labour hour – Actual sales for the store divided by the number of labor hours used during the same period
Inventory Turns – This KPI tells us how often the average inventory over a given period of time (usally a year) is sold in that same period of time
Inventory Store conversion rate – The number of transactions in a given period divided by the total number of customers who entered the store during the same period
Coupon conversion percentage – Percentage of coupons that have been used by customers
Online retail Markdown goods percentage (%) – Measures the number of products sold at markdown prices as a percentage of all products
Sales Kilowatt hours per square foot of retail space – Kilowatt hours per square foot of retail space in measurement period e.g. per month
Profit per Customer Visit – Profit obtained from each customer visit. This way you can easily set goals for your sales team in order to increase profits!
Units per customer or transaction – Total number of units sold in a given period divided by the number of customers or transactions for the same period
Shelf space profitability – measured per product
Price premium – The relative price of a product compared to a benchmark price (average retail price)
Sales percentage (%) of retail stores audited on hygiene and quality criteria – Percentage of retail stores audited on hygiene and quality criteria
Promotion share – Share of promotion products in percentage (%) of total sales
Shortages/overages in cash registers
Sell-through percentage (%) – Is a percentage of units sold during a period and it is calculated by dividing the number of units sold by the beginning on-hand inventory (for that same time period)
Scanning percentage in store – indicates the % of products purchased is scanning properly in store
Percentage of perishable items with past due date – Number of perishable items with past due date as a percentage of all items in store
Sales at stores open at least a year
Product visibility on shelf – Measures the amount of frontal views of a single product-package on a fully stocked shelf
Sales Product share on shelf – Compares product visibility as a percentage to all products on shelf
Sales Gross Margin Return on Inventory Investment – The GM ROII multiplies Inventory Turns (which tells us how healthy our stock is) by Gross margin (which tells us the percentage of profit we make on each sale)
GM ROII = Gross Margin % * Inventory Turns
Inventory Turns = Sales / Average Inventory
A typical value in DIY is at least 100.
Inventory Gross Margin as a % of selling price – Gross Margin is Profit expressed as a percentage of the Selling Price.
Formula: Profit = Selling Price – Buying Price
Gross Margin = Profit / Selling Price * 100
Gross Margin = (Selling Price – Buying Price) / Selling Price * 100
Break-even and depreciation scaling – to calculate break-even and depreciation scaling in function of time and obsolescence of products, especially to help fashion players to measure the effect of those actions. Compares selling of a particular item code in the normal period and during various periods, each one with a different percentage of discount, defining a ratio.
Mystery Shopper Audit Scores (combined)
Must-Have Effect – to analyze the convenience of converting in continuative products, items that instead should last just one season, but that are so appreciated and successful to become must-have bestsellers. The success of an item in fact should be determined by measurable factors (such as the quality/price ratio) but also by non-tangible effects (i.e. advertisement, innovation, trendiness, VIPs wearing publicly the item etc.)
By monitoring these KPIs, and then making changes such as adding new types of stock, new marketing campaigns, or reorganizing your displays, you can compare your KPIs before and after to see if your sales have gone up or down, and why.
This is extremely powerful stuff and you owe it to yourself and your business to set aside a few minutes a day to look at these metrics, it can make a huge difference in your performance and the performance of your store.