Why is Retail Math Good For You?


Generally speaking, numbers make the business world go ’round.

Take it from the highly successful, Mr. Harold Geneen, who said…

“… I would argue that anyone in business, if he sets up the proper kinds of controls – controls that tell him when any segment of his company is not doing what he expected, and tell him this promptly enough and in enough detail so that he can go back behind the numbers and analyze precisely where it is that he has to take action – then he (or anyone else not mentally incompetent) could run a progressive, profitable, and growth-oriented company. That’s what a good set of numbers will do for you.”

We couldn’t agree more.

It’s truly amazing what can be accomplished when everyone knows how the numbers work; how they affect absolutely everything in the business.

Retail math (we’re not talking high finance) is involved in just about every decision that’s made from store, district and region up to the top where major decisions are made.

Some have a direct and immediate impact and some are longer term and less easy to identify.

To be sure, though, management must possess strong retail math skills and general retail math knowledge, if they are going to drive a business to succeed.

Let’s look at a story that illustrates why you need to take a holistic view of the picture that your numbers paint for you.
This is just one simple example of that, at store level, but you’ll easily see how that could affect your business overall.
You need to avoid the mistakes pointed out in this story.

You simply must know what you’re talking about…what the results really mean and what sensible actions you can take to keep on improving your business.

Read it and see what you think. Here it is…

For the motivation and well being of store management and staff, all relevant KPI’s need to be looked at relative to one another. It simply doesn’t work to single out one KPI and rush to judgment without taking the others into account.
It’s not a very smart thing to do. And here’s why.

Let’s take an example of a store that is being managed by a proven, competent and experienced person. This store is achieving sales 25% above the prior year and 100% of target.

Already you can see that this store has been planned for a 25% sales increase over the prior year – which is a healthy increase, and some would even say unreasonable.

However, the store is crushing it, so we’ll leave it at that. Excellent job!!

This store is performing better than chain average for wage cost, sales per hour and conversion. The average units per transaction are considerably higher than chain average.

The average sale ($) per transaction/customer is consistently below chain average – not by much, but below.

The District and Regional Managers for this store are very, very concerned about the ASPC (average sale per customer). They are concerned to the point that they talk about nothing else – not the fact that the target is being met, not that UPT’s are high – nothing else except ASPC.

The Store Manager knows the reason, but no one seems interested.

The reason is this: the store is located in an area that has a low income demographic. This has not always been the case but, in recent years, the more affluent customers have slowly moved away as low income apartment buildings and government subsidized housing have taken over the area.

This fact is not in dispute. Everyone is aware of this, and Head Office management readily admit that the area has undergone a significant change. Mall management has advised that this fact has made it challenging to drive more affluent customers into the mall. The mall, itself, is no longer the pleasant, welcoming, moderate to high-end establishment that it used to be.

So, based on all of this, the store has started receiving thousands of units of heavily discounted, clearance merchandise from other stores because it is recognized that many more units of low priced merchandise can be moved out of this location than any other store in the region.

It functions similar to a clearance warehouse while still maintaining it’s ‘regular retail store’ appearance, and it functions well.
This helps to keep other stores ‘clean’ with mostly regular priced goods, which drives up their ASPC and GM, which is great for the company overall.

For many of you, it’s probably quite clear, already, why the ASPC might be lower than chain average.

The customers in this area buy more units because the units are very low priced. One could make the argument that because the prices are so good, customers should buy enough units to move the average sale up to chain average.

However, that would ignore the fact that the majority of customers have much less money in their pocket to spend.
They can buy more units at low prices but the bottom line is that each of them has less money and will still spend less, in total, than their more affluent counterparts.

This is not rocket science and does not require any degree of genius to understand.

Of course, being highly competent, the management and staff still try very hard to reach the chain ASPC.
They are not letting this clearance mentality change their approach. The associates are still very much aware of the need to actively sell to their customers.

They are not asking for a pass…but they would like to be recognized for the things they are doing really well.

The Manager, the Assistant Manager and all of the Sales Associates cannot possibly feel motivated in a situation like this. No matter how well they do compared to target and last year, and no matter how hard they work to keep the other KPI’s at or above chain average, there is only one thing discussed during store visits – ASPC.

One may say that the District and Regional Managers are simply trying to challenge the management and staff to achieve bigger and better things and that they are focusing on the problem area for that reason.
And that would be fine if the problem area could be corrected by working harder, or smarter or by hiring better people, by presenting the merchandise better, by training etc. But it cannot.

And it makes no sense whatsoever for this conversation to keep taking place.

This is not motivation and it is not challenging. This is pure nonsense and the only result is frustrated and demotivated employees who will soon start missing targets and dropping below average in all of their KPI’s.

Management and staff will begin to leave, and the company will have lost a great team.
As the saying goes “do the math”.

Retail math is not taken seriously enough in this organization.

DMSRetail believes strongly in building a performance culture; in holding people accountable and in monitoring and measuring KPI’s constantly.

For every area of your business…revenue generation, expense and wage control, buying and allocation, procurement and inventory control and… well, everything…you have to know how to apply retail math to make decisions. Anything else is just guessing.

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