Retail KPIs (Key Performance Indicators) are key metrics for monitoring and improving business performance in the retail sector. These indicators support businesses in growing, measuring both the health of the business and the effectiveness of the strategies in place. Every sector, and every business function, has its own KPIs: from sales to marketing to logistics.
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Let’s talk about KPIs in retail
Retail KPIs are specific metrics that analyze the performance of physical stores, from sales volume to staff management. These indicators make it possible to assess aspects such as profitability, the ability to attract and retain customers, and the quality of the shopping experience.
In this article, we will delve into the key retail KPIs, i.e., metrics designed specifically for those who manage physical stores, and understand how they work to apply them successfully through practical examples
What are the main retail KPIs?
While it is possible to create any type of KPI by combining different data, some KPIs are more useful than others for qualitative and quantitative analysis
Average Receipt
\(\text{Average Receipt} = \frac{\text{Total Transaction}}{\text{Number of Receipts Issued}}\)
Average receipt is one of the most relevant KPIs for retailers. It is calculated by dividing the total transacted by the number of receipts issued. This KPI indicates the average spend per customer and offers insights on how to improve sales. For example, if the average receipt is low, it might be useful to incentivize upselling by selling alternative products and/or cross-selling through discounts on complementary products.
Practical example: Suppose an electronics store applies a discount on accessories for those who buy a smartphone. With this strategy, not only does it raise the average receipt, but it also increases the sale of related products.
Number of sales per store
For those running multiple stores, measuring the number of sales per store helps identify the best performing stores. The data collected allows resources to be optimized, such as by allocating more marketing budget to stores with high potential.
Practical example: A clothing chain notices that one store in a tourist area has a higher number of sales than the others. Investing in local promotions or targeted social campaigns could further boost that store’s sales.
Average number of items per receipt (UPT).
\(\text{UPT} = \frac{\text{Number of Items Sold}}{\text{Number of Receipts Issued}}\)
UPT (Unit per Transaction) measures how many items are purchased on average per receipt. A high value can indicate effectiveness in cross-selling strategies.
Practical example: in a cosmetics store, a “buy 3, least expensive is free” promotion can incentivize customers to put more items in their carts, increasing UPT and consequently total sales.
Returns
The rate of returns indicates any issues in the sales process or product quality. An analysis of the reasons for returns (wrong size, defects, or unmet expectations) provides insights for improving the offer and service.
Practical example: a shoe store that records a high number of returns due to size problems could invest time and resources in producing a detailed size guide or tailored advice for each customer.
Sales per square meter
\(\text{Sales per Square Meter} = \frac{\text{Total Sales}}{\text{Square Meters}}\)
Sales per square meter measures the efficiency of use of physical store space. The formula is simple: Total Sales/Square Meters. This KPI is useful for comparing different stores and understanding how to arrange merchandise to maximize space.
Practical example: a sporting goods store can compare its data with that of similar stores and find that by optimizing the arrangement of products it can increase visibility and boost sales per square meter.
Inventory turnover index
\(\text{Rotation Index} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}\)
The rotation index shows the frequency with which products are sold and restocked. A high index indicates that inventory is quickly depleted, while a low value may signal that products remain unsold.
Practical example: in a seasonal store, monitoring rotation allows you to decide whether to reduce prices to accelerate sales of unsold items before the season change.
Best sellers and worst sellers
Monitoring best sellers and worst sellers enables strategic decision making. Best-selling products may benefit from increased inventory or increased visibility; worst-sellers could be included in special promotions.
Practical example: a toy store discovers that a construction set is among the best-selling products. It could invest in an advertising campaign, increase inventory and consequently increase profits.
New vs. returning customers
Comparing new vs. returning customers is critical for retention strategies. In fact, retaining an existing customer is cheaper than acquiring a new one.
Practical example: a clothing store introduces a loyalty program that offers discounts for repeat purchases. This incentivizes customers to return and allows the store to collect data on purchasing behavior.
Number of visits
The number of visits measures how many people enter the store, a crucial data point for calculating conversion. Technologies such as video cameras or motion sensors at the entrance make it easier to track this KPI.
Practical example: a furniture store notices that conversion is low, although there are many visits. Through this data, management can investigate the reasons behind a low conversion rate by implementing solutions such as optimizing the layout or improving customer service.
Employee Turnover.
\(\text{Employee Turnover (\%)} = \frac{text{Number of Employees Left}}{\text{Total Number of Employees}} \times 100\)
Employee turnover is a key indicator of staff stability and satisfaction. High turnover can signal critical organizational issues or deficiencies in human resource management. Employee satisfaction is key to achieving better results, as excessive turnover not only reduces the company’s attractiveness as a place to work, but also takes away valuable skills, leaving room for new staff still undergoing training.
Practical example: a fashion store with high turnover might decide to introduce an incentive program for staff to improve their well-being and satisfaction, reducing training costs and increasing the quality of customer service.
GMROI: Gross Margin Return on Investments.
\(\text{GMROI} = \frac{\text{Gross Margin}}{\text{Average Cost of Inventory}}\)
GMROI is a key KPI for measuring inventory profitability. It evaluates the economic return generated for every euro spent on product purchases, providing a clear indication of how much gross margin is recovered compared to the average cost of inventory. With this indicator, merchandising and purchasing strategies can be optimized, ensuring that the investment in inventory generates an adequate return. A high GMROI suggests effective inventory management, while low values indicate a need to optimize assortment or review pricing strategies. Measuring it regularly, such as monthly or when new products are introduced, helps to gain a detailed view of the performance of specific items or departments.
Practical example: If a store has a gross margin of 80,000 euros and an average inventory cost of 45,000 euros, the GMROI will be 1.78. This means that for every euro invested in inventory, the store recovers 1.78 euros.
Conclusion
Constantly measuring and monitoring retail KPIs is essential for improving the performance of physical stores. Each metric offers insights for optimizing business strategies, from sales to customer experience to personnel management. By adopting these KPIs with a strategic approach and hard data, you can make more effective decisions and drive business growth.
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Giuseppe Fontana
I am a graduate in Sport and Sports Management and passionate about programming, finance and personal productivity, areas that I consider essential for anyone who wants to grow and improve. In my work I am involved in web marketing and e-commerce management, where I put to the test every day the skills I have developed over the years.
