Measuring Retail Performance and Productivity

Tracking Retail Sales
By Shari Waters, About.com Guide

Your shop has customers steadily coming through the doors, employees are busy and
there is the frequent 'cha-ching' of the cash register, but how well is your business really
doing?

One simple way to know if business is good, is to compare this year's same-store

salesdata to last year's revenue. 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.

Performance of Selling Space

Sales per Square Foot

The sales per square foot data is most commonly used for planning inventory purchases.
It can also roughly calculate return on investment and it is used to determine rent on 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 Product 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
 Measuring Productivity of Staff

Sales 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 dependant on its sales clerks 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 in determining the amount of sales a business
needs to bring in 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.

Tracking Retail Sales

 Break-Even Point
 Create a Beat Yesterday Book
 Retail Math Resources

More on Measuring Sales

 Retail Traffic Patterns
 Take Those Numeric Ratings and…
 Three Methods of Sales Forecasting

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Retail Space Productivity
A new buzz word has emerged in the retail space relevant to both retailers and manufacturers: Space
Productivity Optimization (SPO) also referred to as Store Mapping or Store Configuration Database or
Space Measurement. Similarly to Category Management which was a buzz work for 2 decades before it
became an established practice with a definition that everyone agreed to, SPO made a shy appearance
about 3 years ago when RGIS (a then inventory services company) started experimenting with a few
retailers a software company and a consulting group.

Even though Category Management as a discipline theoretically covers both the macro (product category
level) and the micro (item level within product category) space in a retail store it has focused mainly in the
micro space. Store mapping is here to address the missing link: the macro space. Retailers view the macro
space as “real estate” that needs to return a given profit per square foot thus their continuous effort is to
optimize product category space allocation. This need was not as acute as long as revenues and profits
were satisfactory to shareholders. As competition in the retail space grows, optimization at the micro space
(mainly driven by major manufacturers such as Procter & Gamble, Coca Cola, Kraft and Nestle) is not
enough anymore. Retailers in Europe have started much earlier to focus on macro space productivity since
they have higher space limitations than the US and they were not allowed to stay open during weekends.
A proof for this is that the main software companies that have applications that can meet the macro space
needs of large retailers are based out of the UK. It seems that 2007 has been the year that same store
revenue increase has become a much more important and difficult objective than in previous years in the
USA.

It is almost shocking that major retailers (among the top 20 in the world) do not really know where their
products are in their individual stores. Most of them know where the individual stock keeping units (SKUs)
should be within a product category and how many facings each one should have on the shelves but they
do not know where the product categories are actually located in each store. There are 2 pieces of
information that if known can have a tremendous impact in decision making when it comes to macro space
allocation: Product Category Adjacencies and Linear Shelf or Square Feet occupied by each category. A
simple example will illuminate the point: if we take 2 grocery stores that both sell beer and chips and one
of them has chips placed to the right of beer and one has chips 2 aisles further next to other snacks,
chances are, that chips sales will be higher in the store that has them after beer in the traffic flow. Now
add another variable in the mix the former store has 8 linear ft of chips whilst the latter 12 ft and decision
making between the buyers or category managers of beer and chips becomes even more complicated if
the right data is not available.

We often hear that the Department VPs of major retailers meet once a month or once a quarter to discuss
reallocation of space and the only data they have to base their decisions on is sales per product category
per store. If they are lucky they might get space information by product category from a sample of stores,
but other than that department space allocation decisions are based on assumptions, gut feeling and who
can yell louder!

One way to fix what is wrong with the picture painted in the previous paragraph is as follows:
Decide what software and hardware to use for Initial Data Collection, Data Maintenance, Workflow
Management or Interdepartmental Collaboration and the analytical tool that can connect POS data to the
now updated floor plans for the creation of Heat Maps.
Decide who will collect the data to build the library of updated merchandised floor plans usually in
AutoCAD format (DWG) and how and when this will be done.
Find a cost effective way to maintain the data fresh for acceptable intervals e.g. monthly, quarterly or
every time a reset takes place in a store.
Define a process that will allow the constant optimization of space productivity through collaboration
between the retailer HQ, the store and the people responsible for the execution of changes/resets.
Space Productivity Optimization with its 2 main deliverables : a merchandised floor plan (usually a CAD
drawing) that shows the exact locations of the fixtures with the product categories on them and a query
enabled database with all the adjacency and square footage information can be the answer to all these
complex questions that retailers and manufacturers constantly debate about.

Macro Space Planning, Micro Space Planning, Visual

Merchandising and Assortment Planning!
Posted on October 6, 2010 by Retail Acumen

If you are considering a project in space planning, macro space or micro space, visual
merchandising or assortment planning, then this is the blog for you! We’ve got bucket
loads of expertise in this area and are here to help you…

First though, ask yourself, what came first the chicken or the egg? You are
probably wondering what that has got to do with space planning… You may be
surprised but the answer is, quite a lot actually!

More often than not the space allocated to categories, ranges or

skus is related to their previous sales performance. Typically poor performers get a
smaller allocation whilst better performers get larger allocations, and often in more
prominent positions in store. Of course, this then directly affects the future potential
performance – something of a self-fulfilling prophecy. Hence the question, what came
first…
The range plan informs space allocation
and optimal store layouts
 In retail your range strategy / range
direction gives you the forward view that informs the macro space allocation process
to ensure space is divided up on future potential, not on historical performance.
This drives ideal store layouts based on the physical constraints of the stores and the
ideal / optimal category adjacencies. In turn this drives the definition of which
merchandise fixtures should be allocated to which product groups, thereby
determining the maximum possible SKU count by product group on a store by store
or cluster by cluster basis.

It’s not surprising then that this process informs the range planning and merchandise
planning processes as to what the core range SKU count should be and what the
maximum SKU count should be to support the variations in allocated space at store
level across the estate for each and every product category.

Optimal Assortments and Planograms

that fit!

Moving along the timeline, into the assortment planning part of the
process and towards range implementation, actual products become known. At this
point store assortments / cluster assortments can be considered based on the ideal
calculated SKU count. Then an iterative process between micro space planning and
range / merchandising begins to deliver the planogram. Through this iterative process
you would generally consider:
 The visual impact of the planogram from a display perspective (number of
facings, position on fixture etc
 The minimum credible display quantity (MCDQ) of stock (to achieve the
desired display)
 The shelf fill quantity and associated stock investment cost / weeks
cover(validate further in the demand forecasting process)
 Ideal adjacencies to other products (to influence cross selling opportunities,
and,
 Other relevant visual merchandising and product display methods such as
colour blocking, price point groupings etc.

Ultimately the result will be the planogram for each store.

That is the visual representation of what the final store assortment / cluster
assortment should be, how it should be displayed on the shelf, and inclusive of any
other in-store marketing media or customer communications.
Space Planning – The bridge between
Range and Commercial

In most retail businesses a healthy tension can exist in

category management teams between:
1. Those who want to present product to the customer to ultimately drive sales,
who aim to present a ‘credible offer’ – consumer choice, appropriate price
architecture and ‘range completeness’, and,
2. Those who are more focused on the analytics and the pure commercials who
simply see the sku-store rate of sale and forecast demand vs. the required
minimum credible display stocks as an inappropriate placement of stock for
traditional stock turn / stock cover measures.
The final decision is only reached when all of these aspects are considered (customer
facing and commercial) and is the decision most likely to be the best possible.

In such decision making it would be appropriate for the space planning function to
arbitrate. Those in space planning are able to see the impact on sales, stock and space
of planned ranges. They can present the facts and figures to the product and
commercial teams for them to deliberate over.
Utilise Space Elasticity to Increase Your
Sales and Space Productivity

You can realise the opportunity to explore the relationship

of observed demand relative to the quantity (and quality) of space allocated to achieve
a greater return on space and a higher level of space productivity. By applying the
concept of manipulating space to influence demand we can help you to create ‘space
elasticity of demand’ curves.
You can utilise these to really enhance your space performance KPIs as you drive a
more profitable assortment into the most productive space – exploiting the
relationship between total space, location of the space in the store, and the likelihood
of a sale – essentially unlocking the space optimisation potential in your stores.

FSN ANALYSIS
F-S-N analysis is based on the consumption figures of the items. The items under this
analysis are classified into three groups: F (fast moving), S (slow moving) and N (non-
moving).

To conduct the analysis, the last date of receipt or the last date of issue whichever is later
is taken into account and the period, usually in terms of number of months, that has
elapsed since the last movement is recorded.

Such an analysis helps to identify:

Active items which require to be reviewed regularly

Surplus items whose stocks are higher than their rate of consumption; and

Non-moving items which are not being consumed

XYZ ANALYSIS

X-Y-Z analysis is based on value of the stocks on hand (i.e. inventory investment). Items
whose inventory value are high are called as X items while those inventory value are
low are called Z items. And Y items are those which have moderate inventory stocks.

Usually X-Y-Z analysis is used in conjunction with either ABC analysis or HML analysis.

XYZ analysis helps to identify a few items, which account for large amount of money in
stock and take steps for their liquidation/retention.

XYZ when combined with FSN analysis helps to classify non-moving items into XN, YN,
and ZN group and thereby identify a handful of non-moving items, which account for
bulk of non-moving stock. These can be studied individually in details to take decision on
their disposal or retention.

How to do FSN/FNS analysis

By doing FSN analysis materials can be classified based on their movement from inventory for a specified period.
Items are classified based on consumption and average stay in the inventory. Higher the stay of item in the
inventory, the slower would be the movement of the material

F – Fast Moving
S- Slow Moving
N- Non moving

Sometimes the terms FNS is also being used, where 

F – Fast Moving
N- Normal Moving
S- Slow Moving

There following steps in doing the FSN analysis

Calculation of average stay and the consumption rate of the material in warehouse
FSN Classification of materials based on average stay in the inventory
FSN Classification of the material based on consumption rate
Finally classifying based on above FSN analysis.

Process

Let’s take 10 materials for analysis. Following is the analysis of SKU01. Period of analysis is 15 days
Calculation of consumption rate and average stay of the material in the inventory

Opening Balance : 50
Average stay of the material = Cumulative No of Inventory Holding
Days/( Total quantity received + Opening Balance) =1161/115 =10.09 Days

Consumption Rate = Total Issue Qty/Total Period Duration =46/15 =3.06

Nos/Day

Now list down the materials with average stay and consumption rate

Now Carry out the FSN analysis on the basis of Average Stay only as below
in MS Excel as below by sorting down in descending order of Average stay.
Every company has its policy for defining FSN . Here FSN has been taken as
F--10%, S-20%, and N -70%
Now carry out the FSN classification only on the basis of consumption rate
similarly as above 

Now carry out final classification by combining both as under

Related Words: FSN analysis, FNS Analysis, Identification of fast moving,

Slow moving and non moving inventory, Inventory Control using FSN
analysis, Inventory Analysis.
Posted by . at 7:35 AM