Satya Shankar Banerjee is Assistant Professor in the Department of Fashion Management Studies, NIFT. He is a Masters in Fashion Management from NIFT Delhi and has worked with organisations like Wal-mart, NIKE and Woodland. His teaching and research interests lie in Retail, Operations, Marketing, Buying and Merchandising. A trained retailer and an academic by profession and interest, he presents his own observations in the form of this column and may be reached at his Email id : firstname.lastname@example.org
The business of Retail starts and ends with two magical words “Toplines and Bottomlines”. There is no Retailer on this planet that does not want its sales to shoot up and profits to enhance. To achieve higher toplines most retailers have incentive policies which are based on realization of sales targets. When the employee is able to fulfill these targets, he/she is rewarded with the incentives. Most of the Retailers (specifically Indian ones) design Sales Targets for their stores and growth rates expected ranges from 20% over last year to 50% or more, however, often sales floor staff and frontline managers occasionally have no clue on how to fulfill these steep numbers. Often the sales teams end up blaming the other teams about their deficiencies without a proper identification of the actual problem.
So what is the secret of delivering higher numbers consistently? Is it the store, location, Visual Merchandising, Customer service, Merchandise, Inventory, private labels, CRM measures, marketing, promotions and offers or a mix of everything? And if it is an amalgamation of all these retail variables then how does one address the specific problems or challenges by identifying the correct variable and its solution?
To cut the whole story short, this article deals with the basics of the retail business that may be used to address and solve giant industry problems related to increase in toplines or higher sales figures.
Let us try to look at this issue in a simplified way.
We may agree with the following:
Sales = ABV x NOB
ABV :Average Bill Value
NOB : Number of Bills made at the POS.
Example if a store does an average on every bill of Rs 2,000/- and NumberOf Bills captured at Point of Sale is suppose 50 then
Sales = Rs 2000 x 50 = Rs 1,00,000 (One Lakh).
If last year sales were the above figure and the retailer wants a 40% increase over last year sales then expected sales for this year is Rs 1,00,000 x 1.4= Rs 1,40,000.
This may be a steep number when conveyed to the store operations team. However there is another way of conveying the same target in a simplified way.
For this we have to firstly understand the figure given below:
In the above figure, Sales is presented as a product of ABV and NOB, whereas ABV itself is a product of AIV and AIPB. AIV stands for average inventory value or average unit value and this refers to the average price of a single unit. AIPB stands for Average units/item per Bill.
AIV = Day Sales/ No of units Sold.
AIPB = Total units sold/ No of invoices.
For example a store is selling 2.1 items per bill and average inventory value being Rs. 500 produces an ABV of Rs 1050 for a particular day and if the No. of Bills being 50, the store will produce a day sales of Rs 52500.
Similarly NOB is a product of conversion and footfall. For example, in a store on a particular day if 100 customers (or people) walk in and 50% of them end up purchasing anything then the No. of Bills at POS will be 50.
It is interesting to observe that factors contributing to all these retail variables are all different and can be observed in the above diagram marked in like colors.
Considering all of the above factors we can represent sales in the formulae given below:
Sales = AIV x AIPB x Conversion x Footfall
Now let us consider the following simple mathematical calculations.
1.1 x 1.1 = 1.21
1.1 x 1.1 x 1.1 x 1.1 = 1.46
The first equation represents an increase of 10% in ABV and the same in NOB will correspond to an overall increase of 21% in Sales whereas the second equation explains how a 10% increment in AIV, AIPB, Conversion and Footfall may increase the sales by 46%. Also 10% being an easily achievable number (as compared to 40%) it is easily interpreted by a front-end executive.
It is worth mentioning about the different factors, which further affect these four retail variables. Average inventory value (AIV)increases when the sales floor staff start doing upselling and concentrate on high value merchandise. Buying and Merchandising team has got equal responsibility here in terms of creating a balance between high value and low value merchandise and option management on the sales floor. Selling larger pack sizes and combo offers are the suggested practices desirable in this case.
Second case deals with a problem of increasing Average Inventory per Bill (AIPB), which may be addressed by selling more number of units on every bill. Cross Selling, Coordinate Selling, Suggestive Selling and Accessory Selling are some of the global best practices in this context. Impulse merchandise has got a major role in this sphere and retailers like Wal-mart are able to push 2-5% of their sales just by concentrating on Impulse Merchandise in POS and related areas. Another exciting observation is if consumers are made aware of the faster usage rate, multiutility of the same product (only in specific cases), it increases their consumption and consumers tend to buy more no of units of those products. During a store visit to a footwear retailer located in a semi urban locality, I discovered a consumer buying a particular model of shoes double in quantity because he was convinced by the sales staff about the usage of that pair which works as party wear, gym/sports wear as well as with casual office wear. This practice also increases the consumer liking towards the purchased product and helps in building a product loyalty within the store.
Next part is Conversion, which tells about what percent of walk-ins are actually converted into customers. Visual Merchandising is a major component of conversion as it captures the consumer’s psyche ahead of the physical interaction with the sales staff. When this is followed by a healthy customer service, which I feel, is more about “attitude to serve” and less about “service for business”, can make conversions higher. Controlling stock outs and managing SKU level merchandise availability requires an integrated approach between the different teams from operations to merchandising. An important contribution required for higher conversion comes from Buying, Merchandising, Designing and Product Development teams. Stores which cater to a regional customer need to focus on merchandise traiting, which is a practice of understanding the consumer demand of a particular store to a greater depth and then supplying an assortment which is traited for that store particularly. I have come across multiple problems where a particular style is a hot cake in one locality and a slow mover into another of the same region. Conversion is an important factor, the decrease in which directly means decrease in the popularity of the store and may lead to decrease in footfall in the later stage as a non-shopping footfall has greater chance to become no footfall if not addressed immediately.
Lastly Footfall depends broadly upon Six factors Location, Competition, Catchment, Marketing, Promotional offers and Loyalty Programs. Out of these first three Location, Competition, Catchment may be treated as constants (or uncontrollable variables) as the retailer does not have any control over them in the context of an existing store, Whereas, the last three factors are completely chaseable.
Now mathematically we come to know that Toplines growth is the outcome of growth of multiple factors and setting and chasing smaller realistic targets among the different teams can make the target conveniently achievable. For example the target of 40% growth in the previous problem now can be explained as a target of 10% growth in AIV, 10% increase in AIPB to be corresponded to the front end staff, a 10 % increase in conversion to be conveyed jointly to front end, VM and B&M and a target of 10% to be given to Marketing and CRM teams to push footfalls.
Also the vice versa of this method may be used to identify the reasons for de growth of any retail store by doing a comparative analysis of the mentioned factors across different years and months. This method can also be used to catch the idealness of the system and corrective measures may be taken to remove the inefficacies in the sales system in real-time.This process would be used by retailers for designing and developing targets where the role of the corresponding person is easily identifiable from the abovementioned figure.
Lastly I must say that what is measurable is controllable and is achievable!