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