Conversion – The KPI for the New Retail World

The traditional retail performance metric of comp store sales (year over year results for stores open at least one year) may no longer be the best metric to measure store performance. Customers increasingly shop across channels and embrace online shopping. Store closings compress sales into a smaller population of stores. “Comp sales” is, at best, irrelevant and, at worst, completely misleading. It is time to consider a different metric to measure store performance.

For example,

A Store Manager and team may have limited impact on how many potential customers walk through their doors on a given day, but they certainly have tremendous impact on the shopping experience. Ultimately this experience should convert those shoppers into buyers. (Refer to the articles by my colleague Andrew Taylor here for more detail on the “New Reality” for retail.) To maintain performance when store traffic is down, conversion must increase!

Even in 2019, many large-scale retailers don’t consistently track conversion. And if they do, many don’t build performance metrics and strategies for improvement around the findings. I’ve worked with many retailers who say “oh yes, we know what our traffic is…” only to discover they are using transactions and equating that to traffic. Transactions tell the actual number of customers who made a purchase, while traffic presents the total opportunity for converting a shopper into a buyer. Assuming that conversion is irrelevant because you are a “destination shop” is also dangerous. Even a destination shop can “walk” traffic without the right disciplines in place to deliver on the customer experience.

To calculate conversion, you must first capture traffic, and this requires devices. There are many traffic capturing device options in the market; but for the purpose of this discussion we will not discuss the pros of cons of each, just that devices are required for determining traffic. Once you have traffic counts, the conversion formula is simple:

Once the baseline conversion rate has been calculated, it is easy to derive the potential sales lift that can be realized by an increase in the conversion rate. For large-scale retailers, even a 1 percentage point increase can translate into hundreds of millions of dollars of top-line impact.

Conversion Levers

To achieve even a modest sales lift, understanding the levers that impact conversion is imperative. The levers you pull should revolve around the customer value proposition for your stores. Wal-Mart has a very different value prop than Nordstrom, but both should be concerned with converting traffic into sales.Four broad levers that influence turning a shopper into a buyer are:

  1. Maximize Product Availability
    1. Is the product the customer wants to purchase available in the store?

Depending on the type of retailer, this means even down to the size and color level. When an item is not available, the chance of converting that shopper into a buyer significantly decreases.  In addition to a lost sale, the customer has also had a negative shopping experience. Simply having the product in the store is not enough. The product must be available to the customer. Having twenty of a SKU in the backroom doesn’t matter if the shelf is empty. In-store disciplines and processes should ensure that the number of “perceived out-of-stocks” (POOS) are minimized. Typically, for most retailers, a 3-4% improvement in POOS will drive a 1% sales lift.

  • “Save the Sale”
    • Offer alternative fulfillment options. If the item a customer wants is not available in the store, what options does a sales associate have?

Best practices would drive a series of actions to execute when this occurs. Typically, the first may be to offer an in-store alternative. Do you have the same item in a different color? Is there a similar item you can show to the customer? The goal is the save the sale by selling what is available.

Best-in-class retailers offer the option to fulfill through omni-channel and have it delivered to the customer’s home, sometimes even same-day!

The final step in the “save the sale” process is to offer to find the item in another store. Best practice is for your sales associate to have inventory visibility to see what store(s) have the item and then offer options that best suit the needs of the customer. They could go to another store and purchase the item, or another store could send the item to your store or another store could ship the item directly to the customer’s home.

Most retailers have processes like the ones mentioned above, but normally lack visibility to how often those options are being offered to their customers. Failing to measure the delta in conversion when these actions do and do not occur risks failing to drive behaviors that will ultimately delight the customer and save the sale.

  • Drive Customer Engagement
    • If your retail model is built on differentiating your brand based on service, it is paramount that your sales team effectively engage as many customers as possible.

Many retailers do not track and know how often their customers receive service experience. The difference in conversion when this occurs is significant compared to when it does not. Even a behavior as simple as greeting a customer has proven to have an impact on conversion, yet when measured most retailers are surprised by how many customers are not even being greeted.

Depending on the type of retailer, studies have shown a dramatic increase in conversion when your sales associates can get a customer to interact with the product. This can be as simple as getting the customer into a fitting room or to try on a pair of shoes. Why do we think Costco has so many sampling stations? In our experience, this is a behavior that is best achieved organically by first engaging with the customer. Once again, how are you measuring how often this occurs?

  • Enable Scheduling Effectiveness
    • To enable the store to execute on the behaviors described above you must create effective schedules.
  • The goal of scheduling is to get the right employee scheduled in the right place at the right time. Best practice is to leverage technology, along with a great process, to create a schedule based on analytics that matches labor to workload in the store. If your store is under-staffed during peak selling days or peak times of the day, conversion will be negatively impacted.  In addition to poor conversion, you will also be providing a sub-optimal shopping experience. Conversely, this often leads to over-staffing during slower periods of the week thus bleeding payroll.

A final note of caution is that focusing singularly on conversion can have unintended consequences as well. Conversion is that act of turning a shopper into a buyer. Stores must also pay attention to what the customer buys, not just whether they buy. Cross-selling and upselling are critical to making sure the customer gets the solution they need, not just what they ask for. Again, this could range anywhere from getting signage and pricing right, to having fully trained specialists available for the customer. Conversion is necessary, but not enough to win the retail game in the new reality.

In summary…

To compete and win in the new retail era, new strategies must be developed and executed.

These strategies need to include:

  1. Track conversion and use as a key performance management metric
  2. Identify the levers that drive conversion
  3. Quantify your baseline execution of these levers and their impacts on conversion
  4. Design and implement a plan to improve metrics that impact conversion

All the above will ultimately result in improving the success rate of converting your shoppers into satisfied buyer, but ultimately an effective performance management program is crucial to drive sustainable results. More on that in a later blog…

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