Benchmarking for a Competitive Advantage for Retailers

Benchmarking for a Competitive Advantage for Retailers

I have partnered with many retail-related association clients with the goal of helping member companies succeed by using information from financial operating surveys.  Through these studies, I have gained many insights into the inner workings of retail companies and the factors which lead to success.  The industries that these clients represent range from pets, to sporting goods, to furniture, and just about everything in between.  While the products being sold may vary greatly, the one thing that is consistent is that those taking advantage of data are gaining a competitive advantage.

Those who operate a retail company, consult for retail companies, or provide accounting services for retail companies, know there are several key metrics which they should monitor.  These include (but are not limited to):

  • Customer Conversion Rate
  • Average Ticket Dollar Value
  • Profit (gross margin, net profit, return on assets, etc.)
  • Space Productivity (sales per square foot, gross margin per square foot, etc.)
  • Employee Productivity (sales per employee, payroll per employee, etc.)
  • Inventory Turnover

These key statistics, as well as other performance metrics, are items that should be benchmarked against a company’s own historical performance, the company’s own budgets, and versus industry peers when possible (via industry surveys).  These are traditional, effective, and proven methods that companies have used to improve their operations and increase profitability.  Retailers that are consistently monitoring their operations and comparing themselves to their peers are able to identify any deviations that may exist and quickly make necessary adjustments to improve their businesses.  While the above may seem obvious to some, many companies are not taking advantage of readily available data.  Those companies ignoring these important metrics are often lagging behind and in many instances, are not even aware that they have room to grow.

Other ways Retailers are using Benchmarking for a Competitive Advantage

Outside of financial benchmarking, there are also many other ways retailers are using data to gain a competitive advantage.  Through the use of analytics, many retailers are improving operations, providing a better customer experience, and increasing customer conversion rates.  Some examples of these include:

  • Area Specific Store Plans – Many big box retail stores create area specific store plans based on the demographics of the community. They have found that all customers are not the same and have different needs.  As such, these retailers have designed several store plans and build the one that works best for an area based on a community’s demographic makeup (age, gender, ethnicity, etc.).
  • Target Marketing Rewards Members – Many retail companies provide a rewards club for customers. Customers view rewards clubs as a way to earn points, gain discounts, and receive free products or special offers.  From a retailer’s standpoint, it is a way to collect data.  With the rewards card, retailers are able to track buying patterns of customers (items purchased and frequency of visits) and tie this back to customer specific information which was obtained when applying for the rewards club.  By combining the data from all of their rewards club members, retailers are able to target specific segments of their rewards members with customized marketing campaigns and product offers.
  • Market Basket Analysis – Another way that retailers are using data is using market basket analysis. When a purchase is made, a store is able to track which items are bought in a single order (this can be done whether a customer is part of a rewards club or not).  Using this information, stores are able to put products near each other that are frequently bought together.  This will not only enhance a customer’s shopping experience, but will also increase sales of the secondary item by “reminding” the customer of the product.  Additionally, this allows stores to make product recommendations to customers through discounts and coupons.

These are just a few ways that retailers are using analytics for a competitive advantage.  There are many other ways that data can be used to help companies be efficient and productive.  To those retailers that are taking advantage of data, keep doing what you are doing.  To those retailers that may not be utilizing data, I encourage you to start doing so.  It may seem like a daunting task, but the rewards are great.