In an industry ruled by competition, setting key performance indicators (KPIs) and organising audits are often a store manager’s first steps towards improvement. By understanding customer patterns, retailers can improve the efficiency of their processes in order to increase sales, footfall, and overall profitability.
Why you should perform retail audits
In retail, there are dozens of factors that constantly influence the success of your business. This ranges from average transaction size and conversion rate, to daily sales and levels of store footfall. The impact of these will be different for each retailer’s store, depending on the products or services offered, therefore it can be a challenge to tackle these issues with a generalised blanket solution.
To improve, retailers need to extract the specific information they have within their business to construct and implement an effective improvement strategy. Retail audits can begin this process as it helps benchmark the common KPIs – such as number of sales, profit margins and product returns – to produce a plan of action tailored to a store.
Examples of KPIs in retail
KPIs (or key performance indicators) are used to measure progress and performance. In the retail sector there are a number of key factors and metrics which companies tend to base their KPIs around. Examples of the kinds of KPIs set in the retail sector include:
- Net profit: High or rising net profits are a core indicator of business success.
- Value of sales: The amount spent by customers on each purchase illustrates their level of trust in your brand and how willing they are to spend their money on your products rather than any others which they could have chosen.
- Sales per square foot: Determining the sales each square foot of retail space produces shows the productivity of your stores.
- Conversion rate: A high proportion of customers entering a store converting by making a purchase is a key indicator of success in the retail sector.
- Sales per hour: Tracking the number of purchases made per hour helps show how popular your products are and is a crucial performance indicator for companies who rely on high sales volumes for their profitability.
- Sales per employee: The productivity of your staff can be determined by monitoring the number of sales they make over a given period of time.
- Inventory to sales ratio: Dividing the average number of products in inventory by your net sales can show the strength of your sales and indicate whether you are achieving optimal inventory level.
Retailers will often set target values for indicators like these, and assess the performance of their stores by whether they meet these targets.
How audits work for retail
In retail, audits analyse the inner workings of a store, looking at four specific sections – customers, merchandising, promotions and competitors.
With a customer-focused audit, retailers can use a questionnaire to gain insight on the external reputation of the store. Whether you choose to target loyal shoppers or simply passers by, retailers should be asking questions such as around the quality of the products on sale, the level of customer service and general cleanliness of the store.
Merchandising audits collect data on the success of products, reporting on stock and inventory levels, pricing and units ordered against units sold. Promotional reports on the other hand, focus on specific sales, discounts or seasonal offers. With these audits, you can measure the success of promotional strategies, including testing the location of the offer, performance during the sales duration and levels of customer engagement. This will ultimately allow retailers to understand what exactly needs changing for the next round.
Finally, competitor audits identify which stores in the local or wider market, are you biggest rivals. Once these have been recognised, comparisons will be made for reputation, pricings, and product locations to see if a specific store is being overshadowed.
The values of audits
With the data gathered, analysis of the strength of a particular store against those in the wider industry can begin. Understanding how KPIs measure up against other stores will help identify any areas with inefficiencies, and allow work to commence on implementing these improvements.
Audits can also provide proof to suppliers that retailers are adhering to the product agreements in terms of pricing and promotions.
Retail audit structure
When starting an audit, clarify exactly which KPIs you will be measuring, and write down the objectives you hope to achieve from the process. Next, choose the questions you would like to ask in the audit, avoiding anything that does not add value or help your business improve. Finally organise how often you would like to perform the audit in order to gain the most valuable insights.
Once it is completed, compile the data in an easily accessible layout and begin measuring the results. This should be done after each audit has been conducted until you begin to notice trends that can be transformed into actionable improvement strategies.
Overall, the value of an audit depends on the methods used to collect the data. If retailers wish to produce effective solutions for future improvements, steps need to be taken to ensure the data gathered is a reliable and accurate reflection on stores and the audience retailers wish to reach.
Over the past few years, retailers worldwide are continuing to use audits to measure the effectiveness of their brand against the competition. Using quantifiable data, managers can begin to make informed decisions on the store, to drive greater sales numbers and improve the general in store experiences.
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