Retail Economics
- Helps to understand the industry and its future
- Gives deeper insights of the retail industry by category, channel and region.
- Provide data on market sizes, market shares and forecastsSaves time by accessing all
the need-to-know retail datea thanks to various IT tools - Provide key metric vitals for the business & improvement to its permormance
Luxury store needs
- a concept
- a carefully crafted strategy incorporating cutting-edge style, an elegant and understated
atmosphere
⁃ a management structure
⁃ a performance management system
⁃ an organisation a budget
Retail (nom)
is the activity of selling goods direct to the public, usually in small quantities
Luxury Retail
is a segment in the retail industry that specializes in selling high-end goods that are characterized:
- High quality
- High prices
- High degree of exclusivity
Retail
is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to
business or institutional customers.
A retailer purchases goods in large quantities from manufacturers, directly or through a
wholesaler, and then sells in smaller quantities to consumers for a profit.
Retailers are the final link in the supply chain from producers to consumers
Luxury Retail VS Retail@
Luxury retail differs from regular retailing in many aspects:
→ from the design and atmosphere of the store,
→ the merchandising and visual display of the items, to the retail experience itself
→ how customers are served.
Luxury retail store
The store atmosphere and design relays the luxury, exclusive, nature of the brand, and hence
luxury store displays are characterized by low density displays and a toned down atmosphere.
Furthermore, luxury retail stores do not carry high depth for any SKU, in order to re-enforce the
concept of exclusivity and scarcity.
Clienting
is an approach that builds a long term relationship with customers and serves
them based on the data and information collected throughout this relationship’s lifetime.
- New demographic shift
- Organic promotion and marketing through social media, due to the prevalent culture of “sharing” everything.
Before: new customer acquired above 40 meant bringing 3 to 5 more new customers through
word of mouth,
Nowadays, a new, younger, customer could mean 100s or 1000s of potential new ones.
Technology to reach and to serve new audiences.
Digital Clienteling Apps
With clienteling being an essential part of the sales process at luxury brands, many luxury retail
operators have started building their own clienteling apps to better streamline the process and
manage customer data and communication.
KPIs definition
- A Key Performance Indicator is a measurable value that demonstrates how effectively a
boutique is achieving its key business objectives - By the level of the performance indicator we measure the turnover of the boutique and its
business progress: where the business of your boutique is, relative to where it has come
from, and where it is going
The KPIs should be compared in:
- Time
- Target
- Amongst the store belonging to the same or different regions
Gross Margin Return on Invetsment (GMROI)
GMROI is an important retail metric used to help buyers determine if a sufficient gross margin is
earned by the products purchase
You can compare the investment in inventory required to generate those gross margin dollars.
GMROI measures the profit you make from the amount you invest in product stock
Generally tracks specifics products or inventory rather than inventory as a whole
Offers more nuance than just sales or profit margin
Its specificity can tell you what is worth carrying in your stock and what is not, as well as what
you could invest further in.
The more you make on each profit margin, the better your retail business does as a whole.
Growth comes when you find products worth investing in and have a good return on their initial
costs
Inventory turnover (TO)
Inventory Turnover = Net sales/Average Retail Stock
- How many times during a certain calendar period a retailer sells its inventory and
replaces it (turnover) inventor
Average number of transactions
= Number of transactions during time period/Time period
Units per transaction:
= Items sold/number of transactions
Every retailer should consider an Omnichannel strategy to grow their business it’s
important to measure the affect on each sales channel on your revenue
Conversion rate:
Number of purchase / number of visitors x 100
“Conversion rate” – the two most important words for KPI retail metrics IRetail conversion rate measures the proportion of visitors to a store that make a purchase.
The ultimate goal of any retail enterprise is to convert sales, making your conversion rate
paramount to success
Shopper Dwell time:
More & more retail business takes place online
When a customer choose to go to a brick-and-mortar store in person, there must be:
- A reason for them to go
- Compelling reasons to stay
- A reason to purchase from you
- Dwell time is an indicator of customer engagement
Breakeven point:
The level of output at which the cost of production equals revenue.
Sell Through rate (taux de revente en fr)
- Compares the inventory received from a supplier verses the inventory sold.
- Usually calculated as a percentage
- In Luxury, a ST of 65% is common before sales (soldes)
Gross profit margin
(Total revenue – Cost of goods sold (COGS) / Total revenue) * 100
Retailers should view COGS as the amount it costs a company to produce the goods or Services that it
sells.
The higher the number, the more efficient your retail business is in turning a profit for every Euro of labor cost involved
Gross profit margin and net profit margin are two different retail
KPIs that business Managers can use to assess a Retail store business’s stability and financial health.
Main benefits of the KPIs
For the business
- It allows to measure the success of the shop
- They let it choose concrete actions to reverse specific situations
- It is a vehicle to better understand your business and align it with your mission
For the teams
- Involves the team in the project
- Inspires the development of creativity
- Enables more autonomous thinking
- More proactively work
PURCHASING BUDGET / OPEN TO BUY:
A store should only purchase what it should be able to sell during a season :
Turnover projection translates into purchases: Open to Buy (OTB)
Brands use different approaches:
- The store or Sales Manager is allowed to purchase what they believe is good from a wide
selection of products (HERMES podium) - The Store Managers are not decision-maker, stocks are delivered to the stores by the
head office where the selection is automatically calculated by a centralised information
system based on previous sales (LV, SAINT LAURENT EXAMPLE)
Turnover forecast:
Look at:
- Traffic
- Conversion rate
- Average transaction or ticket
- Average income level of potential customers & profiles of passers-by
- Size of the store planned / Turnover per sqm of the brand/Competition
- Product category
What kind of initiatives could you take to improve the performance?
Look at all KPI’S and take concrete actions to improve each of them, Measure the improvement
on a daily /weekly basis and play the team!
Performance review:
1) Evaluate an employee’s work performance
2) Identify strengths and weaknesses
3) Offer feedback, and set goals for future performances
