Article by Frank Lucer
In 2003, author Michael Lewis released a bestseller, Moneyball. It told the story of Billy Beane, the general chief of the Oakland A’s. The book credited Beane with adopting an approach to baseball management that relied more heavily on statistical research than scouting reports. That is to say, Beane was much more interested in the metrics of the game than any given player’s potential for hitting home runs or stealing bases. By most standards, his approach was phenomenally successful. And it offers several useful lessons for retailers. Independent merchants have a tendency to have an enthusiastic grasp of their stores’ day by day sales and profit. But, they seldom apply comprehensive statistics analysis to their key metrics. In this article, we’ll take a cue from baseball and explore the metrics you should be following for your retail shop. I could also explain a way to use those metrics to identify and track trends, and plan your inventory around them. Important Stats to Determine On the surface, the most ‘observable’ metrics to track are the number of people who walk through your doors and the level of sales across the day. Unfortunately, both numbers are akin to home runs and bases thieved. While crucial, they yield really tiny understanding of what drives your business’s profit. You should identify the dimensions of your average purchase order, number of items in each transaction, and the amount of transactions as a percentage of your foot traffic. However, even these metrics are merely scratching the surface. Try to determine if specific assortments or classes are failing to contribute as a proportion of sales and profit. Are your margins deteriorating? Are you being forced to mark down certain items to move the stock? Is your inventory in certain classes failing to sell through as purchasers go for lower-priced replacements? Your ability to adjust to changing dynamics in your shop is contingent upon having the ability to investigate your numbers and track trends. Only then are you able to identify problem areas and plan accordingly. Tracking Trends And Strategizing Inventory Like baseball players who log season after season of predictable performance, many of your assortments will be perennial sellers. Week to week sales numbers may alter slightly, but fluctuations will customarily be restricted to a predicted band (i.e. Floor and ceiling). On the other hand, sales of some of your assortments and product classes might vary wildly. This is especially true for premium items in a bad economy; customers regularly abandon them for lower-priced equivalents. The secret is to track these trends so you can change your inventory. Study your vendors’ invoices to spot cost increases that are reducing your margins. Also, pay attention to your turnover and sell-through rates for each product class. A declining sell-through rate can rapidly force you into a situation where markdowns become your sole viable option for moving the merchandise. Markdowns are pricey because they erode your margins. As demand wanes for categorical items, cut back your stock and allocate your capital toward assortments for which demand is skyrocketing. Keep Your Eyes On Your Store’s Numbers As an independent retailer, your survival is essentially dependent on your capability to conform to changes in your market ( e.g. Consumer preferences, vendor costs, and so on. ). Too many small shops avoid taking a quantitative approach to their business. As a consequence, they fail to establish benchmarks, which leaves them unable to identify crucial trends that impact their bottom line. Get into the habit of tracking the metrics that lie beneath the outer layer of your retail business. Just as Billy Beane helped popularize statistics analysis in managing baseball teams, learn how to closely analyze the numbers that can have an effect on your store’s profit. By doing this, you’ll be able to not only survive, but prosper among your competition.
About the Author
G.A. Wright specializes in high-impact retail liquidation sales events that bring in enormous sales numbers and attract enormous crowds. Check out their website for more tips like this: http://www.GAWrightSales.com
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