Retail: Strategies, Performance Measure, Franchising
Retail strategy is a holistic marketing plan for a product or a service to reach and influence the consumers. This strategy covers everything from what retail channels a product or service will be available in to what should be the price or sales incentive to be given and how to display the product in the shelf.
Retail strategy is developed for product to be distributed through retail outlets. When a product is sold through a retail outlet, a number of factors affect the sale of the product. Some of the factors as already mentioned above are:
- Pricing/discounting of the product
- Incentive structure followed
- Promotions planned
- Placing of the product
- Display attractiveness
- Incentive structure for the retailers
These are some of the major factors and is not inclusive of all. Strategizing on how to proceed in all these friends to finally influence the consumer to buy your product is the development of retail strategy.
The above mentioned factors are the controllable variables of a retail strategy as shown in the picture. Apart from planning for these a retail strategy should also take into account the uncontrollable factors like seasonality, legal restrictions, economic conditions etc. in order for the strategy to be effective.
Understanding which campaigns and strategies drive the most sales for your retail store can help retailers build on their successes and minimize missteps. An effective way to assess what works best is to adopt metrics that show the business’s strengths as well as areas that need improvement. Measuring productivity and performance calls for more than simply checking to see if the business made a profit each month.
One simple way to know if the business is healthy is to compare this year’s same-store sales data to last year’s revenue. But what if your store has been open less than a year?
It is critical for the success of your business to constantly work towards improving not only the efficiency of employees but the productivity of the store’s selling space and inventory as well. This can be achieved by using various retail math formulas and calculations based on sales.
Too often, small business owners go off of their “gut” when making strategic decisions. They might base their decisions solely on the limited opinions of their sales staff who only work certain days of the week. In order to make wise business decisions, you need comprehensive data that can be used to form a more cohesive and complete assessment of performance.
Business owners may have “hunches” about what is happening in their operations but the data can tell very different stories. Data can also alert business owners to trends they are not aware of, which enables them to make adjustments.
Eight key performance calculations can be used to monitor your retail store. If you track these metrics on a regular basis, you can grow your business efficiently.
Sales per Square Foot
The sales per square foot data are most commonly used for planning inventorypurchases. It can also roughly calculate return on investment and it is used to determine rent for a retail location. When measuring sales per square foot, keep in mind that selling space does not include the stock room or any area where products are not displayed.
Total Net Sales ÷ Square Feet of Selling Space = Sales per Square Foot of Selling Space
Sales per Linear Foot of Shelf Space
A retail store with wall units and other shelf space may want to use sales per linear foot of shelf space to determine a product or product category’s allotment of space.
Total Net Sales ÷ Linear Feet of Shelving = Sales per Linear Foot
Sales by Department or Category
Retailers selling various categories of products will find the sales by department tool useful in comparing product categories within a store. For example, a woman’s clothing store can see how the sales of the lingerie department compared with the rest of the store’s sales.
Category’s Total Net Sales ÷ Store’s Total Net Sales = Category’s % of Total Store Sales
Cash is king in retail and the biggest drain on your cash is your inventory. Selling big-ticket items is a potential way to generate profits but only when consumers by the products. Otherwise, they can be costly investments for the retailer. Measuring your turnover is one way to know if you are overstocked or even under-stocked on an item.
Sales (at retail value) ÷ Average Inventory Value (at retail value)
Known as Gross Margin Return on Investment, this calculation has become popular because it combines a couple of metrics into one and gives a more accurate picture of profitability compared to inventory turnover.
Gross Margin (dollars) ÷ Average Inventory (at cost)
Items per Transaction
Also known as sales per customer, the sales per transaction number tells a retailer what is the average transaction in dollars. A store dependent on its salespeople to make a sale will use this formula in measuring the productivity of staff.
Gross Sales ÷ Number of Transactions = Sales per Transaction
Sales per Employee
When factoring sales per employee, retailers need to take into consideration whether the store has full-time or part-time workers. Convert the hours worked by part-time employees during the period to an equivalent number of full-time workers. This form of measuring productivity is an excellent tool for determining the number of sales a business needs to generate when increasing staffing levels.
Net Sales ÷ Number of Employees = Sales per Employee
These are just a few of the ways to measure a retail store’s performance. As retailers track these numbers month after month and year after year, it becomes easier to understand where the sales are generated, by which employees and how the store’s merchandising can maximize sales growth.
Since the profit comes from the second item we sell and not the first, then accessorizing the sale is paramount. This is an easy calculation. Simply divide the total sales by the accessory sales. This will tell you how well your employees are doing at adding on the sale as well similar to the Items per transaction above. Depending on your products, an ideal range for this metric is 10%.
Net Sales ÷ Accessory Sales = Accessory % of Sales
In its most basic terms, franchising is a model for expanding a business and distributing goods and services through a licensing relationship. A franchisee (you, or the location owner) pays an initial fee and ongoing royalties to a franchisor (the brand or “corporate”) in order to use an existing company’s trademark, logo, and system of business, as well as the right to sell its products and have constant support from the franchisor.
In terms of entrepreneurship, franchising is the opportunity to work for yourself but not by yourself.
There are two main forms of franchising. One is product and trade name franchising, where a franchisor sells or licenses the right to use a particular company name or trademark. The other type is business format franchising, where the franchisor provides a full range of services and support to the franchisee. That can include business processes, inventory ordering, etc. Most often, franchise businesses use a hybrid model incorporating both these forms.
Launching a business is tough and not for the faint of heart. Not only must a retail entrepreneur come up with the idea, write the business plan, secure investors, source products, find a location, hire employees and spread the word through marketing, advertising, and social media, but there’s a chance that a single misstep could cause the entire business to fail. Starting a business usually involves some level of risk.
This isn’t to say that opening a franchise doesn’t come with its own risks, but one of the benefits of opening a franchise rather than a sole proprietorship is the higher chance of success. According to Franchising.com, here are some other benefits to opening a retail franchise:
- Training and Support
- Location Scouting
- Brand Recognition
- Group Purchasing Power
- Peer Support
- Faster Opening