Retail Industry: Key Performance Metrics

You cannot manage what you do not measure and cannot measure what you do not define. Learn the key performance metrics for the retail industry like Sales per square foot, Gross margins return on investment, Average transaction value, Customer retention, Conversion rate, Foot traffic, and digital traffic and Inventory turnover, etc. These metrics are used across the globe by key industry players to track and improve their performance.

Key Metrics in Retail

Every business has its own set of metrics that helps the business to assess its performance and benchmark itself against others in the business. Metrics are, simply, a set of measurements that evaluate retail establishment’s outcomes against some kind of benchmarks, such as past performance, store objectives, and industry averages. Metrics are also called “key performance indicators.”

Defining metrics for measuring the success of a retail business is not easy due to the prevalence of several formats of retail globally such as supermarkets, hypermarkets, single-brand retail, department stores, specialty chains, and many more. Players in the retail industry need to define metrics that are not only relevant for physical customers but also their virtual customers.

The focus here is to describe the few important metrics that are being measured by the retail industry globally. For most retailers, key store metrics include traffic counts, conversion rates, and the performance of sales staff. Given below is an exhaustive list of commonly used retail performance measures:

Metrics	Definition of Metrics
Sales per Square Meter or Profit per Square Meter	It measures the retail space performance on the basis of sales/profits as per the area of floor space covered. This measure is conducive to use when only a single layer of merchandise is displayed and various types of fixtures are placed. This is a common measure for fashion retailing.
Sales per Linear Meter or Profit per Linear Meter	It measures retail space productivity on the basis of income generated by footage of the shelf space allocated. This measure is more suitable for stores using multi-shelf fixtures such as racks. It takes into account the linear value of the shelf rather than the area of space exposed in terms of the height value of the shelf.
Sales per Cubic Meter or Profit per Cubic Meter	It measures retail space performance on the basis of length, width, and depth of the fixtures placed in the stores. This measure is necessarily used by the retailers in the frozen food business or those who place dump bins on the retail floor.
EBITA/Interest	EBITA, or earnings before interest, taxes, and amortization, divided by interest. This metric provides an interest coverage ratio that identifies a company's ability to pay interest on its debt.
Retained cash flow/Net debt	Retained cash flow, or the cash flow from operations before working capital changes minus dividends, divided by a company's net debt. This metric provides information about a company's ability to pay its debts.
Free cash flow/Net debt	Free cash flow, or all cash flows except those from financing activities, divided by a company's net debt. This metric reflects a company's ability to repay its debts.
Cash flows from operations/Gross debt	Cash flow from operations, (typically the cash flows from operating activities after working capital reported by retailers) divided by a company's gross debt. This metric provides information about a company's ability to repay debt.
Sales/Square footage	Total sales divided by the square footage. This metric identifies the average sales per square foot of a retail establishment.
Sales/Inventory	The number of units sold for a product divided by the number of units in inventory. This metric provides a ratio of the inventory available for sale to the actual number of units sold.
Cost of goods sold/Average inventory	The cost of goods sold divided by the average inventory. This metric provides a measure of inventory turnover.
Product Return	Measures the value of the products that were sold and returned to the store by the client, for various reasons
Product sold per transaction	Measures the average number of items from different product lines sold on a per purchase basis. A product line refers to a number of related products that are developed by the same manufacturer
Out of stock product line	Measures the number of product lines that are not available in the store
Sale value	Measures the value of a customer bill/purchase, on average, within the store.
Customers per day	Measures the average number of customers the store manages to attract on a per-day basis
Units sold per customer	Measures the average number of units sold by the store on a per-customer basis
% of store loyalty	Measures the percentage of loyal customers, from all store customers. Loyalty should be defined based on several attributes, such as the size of purchases, time spent in-store, and frequency of purchase.
Frequency of store visits	Measures the number of times a customer visits the store in the period, on average
Inventory to sales ratio	Measures the ratio between the retailer's inventory value and the sales revenue
Time spent in-store	Measures the length of time spent, on average, in-store by prospective customers (for the purpose of shopping)
Employee theft	Metric to measure theft that has been attributed to theft by employees
Shoplifting	Measures the value amount of products that were stolen from the store.
Vendor fraud	Measures the value of fraud generated by the vendors. Vendor fraud can be delivering the wrong amount of inventory on the shipping invoice up to removing small amounts of inventory
Sales per unit area	Measures the value of sales divided by the retail space, on average per unit area. The unit of area is usually square meters in the metric system or square feet in U.S. customary units.
Percentage of selling space	Measures the percentage of storage space available for selling products, from overall store space
Top-selling items	Measures the percentage of sales from the top-selling items from gross sales.
Percentage of sales by product category	Measures the percentage of sales generated by a product category from the overall gross sale
Sales compared to budget/target	Actual sales divided by budget/target sales.
Sales compared to last year (or any other period)	Actual sales for a given period divided by actual sales for the period you want to compare to.
Sales per Square Foot	Actual sales $ for a given period (usually a month or a year) divided by the total floor area (in sq.ft.) of the store. There are variants of this indicator in terms of sales per square foot of the merchandisable area of choice (like walls and display units.).
Wage Cost	The actual wage paid for a given period divided by actual sales achieved for the same period.
SGA	SGA means the costs associated with traditional selling, general and administrative functions.

Other Key Metrics in Retail:

Given below are some other metrics that can also be useful based on the reporting needs:

Demographic Metrics:

Total sales
Three-year revenue CAGR
Employees
End-users
Domestic sales as % of total sales
Gross margin %
Number of retail banners
Number of stores
Average square footage per store

Baseline Metrics:

Total SGA cost distribution by cost component
Total SGA cost distribution by function
Total SGA staff distribution by function

Metrics for Executive Summary:

Total SGA cost as a percent of sales by function
Total SGA cost gap to low-cost performer by function
Cost as a percent of total SGA cost
Total process cost as a percent of sales

Metrics Tracking Store Operations:

Store operations cost as a % of sales (labor, outsourcing, technology, other)
Store operations cost allocation (labor, outsourcing, technology, other)
Store management cost allocation
Process category cost as % of sales
Store operations process category cost allocation
Total store operations FTEs per $1B in revenue
Store operations fully loaded labor rate
Store operations total cost per store operations staff
Store operations total cost per store
Occupancy cost per store
Store operations process cost per store
Sales per sq ft selling space
Store operations cost per sq ft selling space
Sales per labor hour (SPLH)
Store associate turnover %
Inventory shrink %
Total shopper returns as % of total sales
Loss prevention process cost as a percent of sales

Metrics Tracking Merchandising:

Merchandising cost as a % of sales (labor, outsourcing, technology, other)
Merchandising cost allocation (labor, outsourcing, technology, other)
Process category cost as % of sales
Merchandising process category cost allocation
Total merchandising FTEs per $1B in revenue
Merchandising fully loaded labor rate
Sales per buyer
The average number of SKUs managed per buyer
Number of active vendors
Number of purchase orders generated
% of goods sourced domestically
Private label sales as % of total sales
% direct sales (online, catalog, phone) as % of total sales
% of sales promoted
% sales on markdown

Metrics around Supply Chain Function:

Supply chain cost as a % of sales (labor, outsourcing, technology, other)
Supply chain cost allocation (labor, outsourcing, technology, other)
Process category cost as % of sales
Supply chain process category cost allocation
Total supply chain FTEs per $1B in revenue
Supply chain fully loaded labor rate
Inventory turns
Cartons picked per labor hour (pick function only)
% of merchandise returns to the warehouse
Vendor compliance offset $ as % of total revenue
Transportation cost per inbound carton
Transportation cost per outbound carton
Import order cycle time days
Import shipments routed via airfreight as % of total shipments

Importance of Metrics in Retail

Essentially, metrics turn data generated by the store into intelligence. By measuring the success of these parts of the operation, retailers can understand what works and what doesn’t work, set realistic targets, and gauge the store’s performance against past performance, the store’s goals, and the rest of the industry. Sales and profitability are considered established measures of retail unit success. They can be used to measure the performance of retail space management. The measures of retail space performance indicate the productivity of retail space.

Technology and the right business processes offer a way to draw intelligence from the data more easily. With the right technology and processes in place, retailers can pull more precise and more useful details from the raw data. Retailers who can generate intelligence about customer preferences and buying patterns are better able to connect with individual customers, refine the product mix, and hone customer service and business practices to be more efficient, cost-effective, and responsive. The more refined the data, the more precise the retailer can measure the store’s current performance against past performance, market performance, and retail industry benchmarks.