Physical retail footprint store productivity - Connected Corners

2 reasons why store productivity KPIs may need a re-think for the modern retailing era

This topic briefly takes a look at the 2 key reasons why brands may need to re-think some of their traditional (physical) store productivity KPIs to adapt to the modern retailing era

This topic briefly takes a look at the 2 key reasons why brands may need to re-think some of their traditional (physical) store productivity KPIs to adapt to the modern retailing era

Quick Note: Despite certain similarities inherent to the broader industry; each retail business is unique; defined by a multitude of factors (vision, geography of operation, technological capabilities, industry partnerships, et al.) and as such would have distinct roles for their physical store footprint within their broader omni-channel strategy and as such corresponding KPIs for measuring its store productivity as well

Significance of traditional store productivity KPIs

For long, success within the retail industry – and by extension retail store productivity KPIs – were measured in terms of sales volume through the door &/or revenue generated; particularly as a proportion to the usable floor space (i.e.sales/m2 and$/m2)

Over time these store productivity measures helped retailers determine the standalone / relative success of any given retail point-of-presence (POP) within their existing store network as well as aided in modeling sales & revenue targets for future POPs so as to maximize their bottom lines

But these most fundamental store productivity KPIs (sales & revenue) themselves depended on a number of variables such as store location, format & product range as well as correlating overheads which; in some cases could vary significantly (think: regional small format store vs. downtown large format store)

Furthermore; the retail industry as a whole has been undergoing a significant transformation in tandem with the digital & mobile revolution; particularly as it relates to the re-distribution of sales function across multiple channels (read: eCommerce & omni-channel initiatives)

…further eroding the significance of using traditionalsales/m2 and$/m2 as sole KPIs; instead prompting brands to re-think how their store productivity should be measured in this continuously evolving modern retailing era

Why re-think store productivity KPIs?

1. Retail industry itself is evolving

In keeping up with the ever evolving market, technology & consumer trends; the broader retail industry itself is undergoing significant transformation on several fronts (think: omni-channel platforms, D2C services, digital solutions, hybrid frictionless shopping, et al.)

Once solely serving as sales channels (ergo focus on KPIs such as sales/m2); physical retail stores are increasingly fulfilling a variety of roles within the broader omni-channel & multi-purpose retailing paradigm

As such consumers aren’t bound to shopping at physical retail stores alone; instead seeking to initiate, transact and conclude their shopping journey across a permutation of retail channels that is most convenient to them … and at any time of the day

Put another way; in an omni-channel environment; retail stores are only a part of the holistic shopping experience across the retailer’s physical & digital footprints

For example; a shopper may choose to purchase a TV with just a few taps on the retailer’s e-storefront whilst sipping on an espresso @ 5am in the morning… AND… select a same day in-store pickup as a fulfillment option

In another instance; a shopper may choose to experience a furniture item in a retail showroom environment… ANDcustomize & transact over the the retailer’s mobile App whilst still in-store and choose a home delivery as a fulfillment option

Whilst sales & revenue will always be amongst the key metrics of success; continuing to measure retail store productivity solely on these metrics (or variations thereof) in an omni-channel era could potentially discount its other net positive contributions (think: brand experience, CX, customer pick-up point, et al.)

2. Retail stores increasingly fulfilling multiple roles

Legacy retailers bidding goodbye, massive store closures, declining same store foot traffic & sales, diminishing profit margins… and of course… Amazon are some of the key retail buzzwords dominating our news feeds, pundit analyses & investor notes alike

The fact is that the broader retail industry has part been undergoing a phase of ‘channel correction’ – where yesteryear’s physical store opening craze is being ‘corrected’ to better fit within the modern omni-channel retailing paradigm

Changing consumer demographics, segmentation, sentiments, domicile density shifts (urban vs. suburban), social media & App storefronts are rapidly altering the retail landscape within hyper-emerged markets such as U.S (elsewhere on the planet, physical retail still remains the dominant channel… and in many cases… the only channel!)

Sure, whilst an increasing number of consumers are making more online purchases than ever before; that doesn’t mean that online channel is supplanting the physical retail footprint entirely or anytime soon for that matter…

…in fact; eCommerce channel needs brick-n-mortar stores just as much as the other way around… suffice to say they are becoming more inter-reliant than ever before…. for example;

  • Amazon’s purchase of WholeFoods (& it’s Go Store concept) is as much about gaining foothold in offline as much as it is about innovation
  • Walmart’s purchase of Jet.com & myriad of other traditional brick-n-mortar retailers’ expansion into online storefronts says the same story

Read the topic outlining how traditional physical store footprint could leverage various show-rooming initiatives to not only remain relevant but also benefit the retail brand

Physical retail channel is constantly evolving to fulfill a multitude of roles… and as such would aptly benefit from having more than one traditional KPI to measure store productivity & success

Re-aligning retail store productivity measures

During the yesteryear’s phase of physical retail store hyper-expansions, these broad-range sales metrics served the KPI purpose well (for obvious reasons such as footprint investment)

…but in the evolving retailing era; brands would have to adopt store productivity measures that are most appropriate to the correlating set of tasks they perform… so it would follow that as stores increasingly assume multiple roles; so too should their productivity KPIs

Retailers could re-align their store productivity KPIs based on a variety of variables such as type of store format & location, primary duties they fulfill, consumer segment they cater to, CAPEX, OPEX & ROI goals and many more

Traditional store

For many retailers; traditional store formats will continue to remain the backbone of their overall retail strategy and as such would largely focus on direct sales & revenue generation (at POP level)

Brands could continue to focus on traditional sales/m2 &/or $/m2 KPIs as the productivity measure for these types of store formats although may also benefit if it is done contextually i.e in conjunction with some variation of customer service & CX metrics to measure it holistic success factor

Few other store productivity scenarios…

Destination store

For many type of retailers; destination store formats are becoming an extension of their brand and as such serve a broad array of duties from experiential retailing through to partner sales channel, customer service hub and everything else in between

Destination store productivity measures could be re-aligned to favor experiential retailing related KPIs that combine –

Customer satisfaction & engagement (tracked by smiley face buttons, NPS, post-sale survey, etc.)

Omni-conversion, up-sell & x-sell sales (tracked either through unique loyalty membership, channel survey @ POS, et al.) and

In-store traffic & product engagement (tracked by camera-based heat maps, bluetooth/WiFi beacons, etc.)

Fulfillment store

For some type of retailers/supermarkets; fulfillment store formats act as an extension of their centralized distribution center and as such fulfill key supply chain tasks (local area fulfillment, click-n-collect, et al.) in addition to being a regular sales channel

Fulfillment store productivity measures could be re-aligned to include supply chain related KPIs that could combine –

Inventory management metrics (tracked by in-store stock on hand, obsolescence control, et al.)

Consensus forecast, demand planning metrics (tracked by store level forecast accuracy, SKU holdings, et al. ) and

On time & accurate order fulfillment metrics (tracked by delivery time, JIT order preparation for pickup, return rates, et al.)

Quick stop & shop store

For some retailers; quick stop & shop store formats are becoming increasingly popular choice in providing convenience retailing; particularly within dense urban areas with limited (& often expensive) real estate

Quick stop & shop store productivity measures could focus on JIT retailing related KPIs that combine –

JIT Inventory management metrics (i.e. minimal in-store stock on shelves, et al.)

Sales & transaction experience (tracked by transaction time @ POS, time-in & time-out per customer, et al.) and

In-store product management (tracked by maximizing revenue per product category, obsolescence ratio, et al.)

So…

In both of the aforementioned scenarios the physical retail store itself may not have scored the shopper’s business (if measured by in-store direct sale & financial transaction)… but it certainly did play a central role in winning the sale for the retailer!

Whilst metrics such as gross margin, units/transaction & Y-o-Y sales will continue to remain the mainstay KPIs of the retail industry… as physical stores evolve to play multiple roles in the overall omni-channel paradigmso too must their KPIs to better reflect the task they predominantly serve not just ‘hard sales’

Physical store footprint will continue to augment eCommerce channels with experiential & customer service factors (for select product categories) and as such would require corresponding KPIs to measure their performance

It is fairly certain that based on the type of product sold &/or service provided; the brand’s physical retail footprint will continue to play a central role in the development & provisioning of an optimized omni-channel retailing platform

Forthcoming segments will aim to cast some light around store formats, in-store experiential range as well as the significance of blockchain in supporting an omni-channel operation

Stay tuned!

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