I thought I’d like to take a look at some of the statistics commonly used in the retail industry. Love ‘em or hate ‘em, they are critical to enable us to measure our business performance, but at the same time, it’s important to view them in context. By this, I mean that they need to be interpreted properly with an insight into the factors affecting them. All too often in retail, I’ve been contacted by people not in direct contact with the sharp end of the business regarding statistics which appear to indicate questionable performance. For example, a call from a Managing Director once questioning why a particular weeks average margin had dropped by almost half, and quickly resolved by explaining that a very large trade order at wholesale prices had been put through that week, resulting in an artificially low overall margin. Now, it happens that I’m a great believer in statistics, but I believe that they should be produced regularly and subject to comment by a local staff, who can identify and explain unusual trends. This is critical so that “false” statistics are not later used as a basis for business decisions.
So, what are the most important statistics for a retail business? The most obvious one is sales volume, and this needs to be measured against the same period in the previous year or years. It’s always useful as a year progresses to be able to follow a graph and identify the business trend for each week, month or quarter. Depending on your business sector, you will come to know the highs and the lows, which is essential for planning. You would not want to, for example, recruit new staff and have them start during your busiest times as the training requirement would simply absorb the time and energy of the existing staff and negatively impact sales and customer service at a time when you shouldn’t have man hours to spare. If you have your finger on the pulse, you will probably be able to identify periods in which you have underperformed. Let’s assume, for example you are a newsagent, and you had insufficient stationery stock during the back to school period, you can note this on your graph and be prepared next year, revising your sales targets to what you believe could be achieved if your stock level was at critical-mass.
Two other statistics are commonly in use by retailers, and those are UPT or Units-Per-Transaction, and ATV or Average-Transaction-Value. Essentially, UPT is the Number of units (SKU’s) sold during a set period divided by the number of customers in that same period. e.g. 650 units sold on a day that saw 223 customer transactions would give a UPT statistic of 2.91. That is to say that the average customer bought 2.91 items. That would be disastrous if you were a grocery store, but excellent if you were a jeweller. ATV on the other hand is the total sales for a period divided by the number of customers in that same period. So, a day with sales of $4325 and 87 transactions would give and ATV statistic of $49.71. i.e., the average customer spent $49.71.
Now, why are UPT and ATV of interest? Well, actually, they are really very important indeed, and help identify your staff training needs and your marketing initiatives. Let’s take a Photo retailer as an example. He looks at his UPT statistic for a particular day and finds that it’s 1.5. Now, let’s see how that works. That means that his average customer left the store with 1.5 items in their shopping bag. That same day there were 112 transactions through the till, so some bought 2 items, some bought 3 items, and a whole lot bought only one item, and it averages out to 1.5. That’s not a good UPT figure, and it would have me looking through the sales receipts for the day. This is how it should work; the customer comes in looking for a camera, and the well trained sales associate sells him a suitable model. But how is that customer going to record his pictures since he didn’t also buy a memory card? So, the well trained and efficient sales assistant sells him a memory card too. He also sells him a case for the camera, a filter to protect the lens and a spare battery pack. That’s five items, so the UPT for that particular sale is 5. Then another customer comes in and gets the less well trained sales associate, who sells him the camera, and the customer himself asks for a memory card and that’s where the sales process ends with the less well trained guy…so the UPT for that sale is 2. Between the two sales the UPT is 3.5. Now, let’s not be too hard on salesman 2, because some customers just want what they want and can’t be sold extra’s, but imagine if you have a salesman who typically has an average UPT of 4 and another who typically has an average of 2? Well, you need to look closer at what’s going on. Unless of course, you don’t bother with the statistics, and I’d say you are ignoring a valuable tool. In the same way, you can look at the ATV, and you will generally find some staff typically generate larger sales than others. Now, the fact is that these local figures, even broken down into individual salesmen should be looked at by the local manager; the sales director gets the figures for all the stores. This enables him to get a general overview, and identify a weak store that needs to be looked at, or a particularly strong store that can be looked at and perhaps share best practice around the whole business.
The most important thing I must emphasise though, is that unusual blips in statistics don’t always indicate a problem or particular success, they need to be investigated, which is all part of the diligent management of a business.
And the link to marketing? Well, while advertising executives may choose to argue otherwise, most marketing initiatives are targeted at either getting those customers who come through your doors to spend more, i.e. increase your ATV, or to drive footfall into your store, which will increase your sales. In all cases however, you have to have your team trained to maximise the ATV and UPT, for otherwise your business is under-performing.
If you’d like more information on statistics and their analysis, or how to set up a statistics system for your business, contact us via our website.