Evaluating Retail Performance Metrics

Jenelle Sheridan, a former VP and GM at Athleta, discusses how to analyze a retail company. Jenelle has 15 years of experience in retail and e-commerce, working as a consultant and operating executive. She has experience in pre-revenue startups and larger enterprise businesses, and recently launched her consulting and advisory practice, Far View Partners, which focuses on helping consumer and retail companies unlock growth. Jenelle served on the leadership team at Athleta for almost 10 years, leading strategic growth from a $200 million business to over a billion dollars. She has also held functional roles in marketing, strategy, and business development. 

Metrics to Measure for Success

Jenelle emphasizes the importance of metrics in understanding success and how to look at performance in retail companies. She talks about the importance of evaluating company performance and effectiveness across various stages of maturity. Jenelle emphasizes that success depends on growth metrics like brand awareness, customer acquisition, and revenue growth, while profitability is less critical at emerging retailers. For established retailers, operational efficiencies like inventory turns and return on gross margin are critical.

The Big Three Metrics for Investors

Jenelle states that, regardless of stage of maturity, the big three metrics for investors are same-store sales growth, sales costs, and sales comps. Same-store sales growth measures the change in revenue for stores that have been open for at least a year, helping to isolate organic growth. A strong sales comp metric indicates increasing consumer demand or successful product strategies, while a low or negative rate may signal challenges or market saturation. She explains that best in class sales comps are in the five to seven percent range, the industry average, and discusses the potential consequences of flatlining or decelerating sales comps, such as increased foot traffic, conversion, and basket sizes. Jenelle believes that delivering zero growth is not acceptable for mature brands, as it may not be enough to meet the needs of shareholders and leadership teams. However, if a brand is experiencing flatlining or decelerating sales comps, it is essential to see growth to keep pace with accelerating costs. By focusing on these metrics, retailers can better understand their performance and make informed decisions about their strategies.

Underlying Sales Drivers

The conversation turns to sales and the underlying drivers such as traffic, conversion rate, and transactions. Stores typically have a lower traffic number, but when traffic decreases, the conversion rate increases due to more intentional buyers. The overall basket size is typically the same, but slightly upticks in the basket size are observed. Jenelle explains that public companies typically report store sales growth on traffic and conversion rate, but some brands and retailers report lower-level metrics, such as average customer spending per year. These metrics are often tied more to the customer rather than the transaction level metric.

Gross Margin Metric

Gross margin is another key metric in the big three, reflecting the efficiency with which a retailer manages its costs relative to its sales. High-performing companies use pricing power or efficient supply chains to achieve top-tier margins. She offers a few examples from well-known brands. For example, luxury brands can have margins of 60% and above. Jenelle moves on to break down gross margin, average sales per square foot, and how this usually speaks to efficiency. She explains the key factors in achieving this type of sales efficiency, including turning inventory quickly and pricing correctly. 

A Focus on Inventory Turns

Jenelle explains why retailers need to consider inventory turns, which are the frequency of selling and replacing inventory over a period of time. High turnover indicates well-aligned supply and demand management, while low turnover can indicate inefficiencies or excess inventory. For example, Zara has fast-moving inventory. This is industry-specific and category-dependent. For apparel retailers, performing inventory turn analysis by category helps identify fast-moving versus slower-moving items, allowing for more precise management and buying. Fast-moving categories include basics, while slower-turning categories like luxury and formal wear are typically slower-turning. This helps optimize inventory and capital dollars.

Customer Metrics and Segmentation

Customer metrics are increasingly common for retailers to look at, as they provide an omnichannel view and allow for segmentation based on various customer personas. They can look at new versus existing customers, spend per customer, frequency of purchase, and average price of items within transactions. Jenelle talks about the benefit of looking at the data over a 12-month period and mentions that the goal is to increase spend per customer over time by building the customer's basket based on the breadth of the offering, driving additional visits through frequent product drops or promotions, and pulling levers in a customer-centric way. She mentions that segmenting customers by product category or type of customer can also help drive spending per customer. She offers examples of segmentation and how it can increase customer spend. By looking at data this way, retailers can create tactics to drive spending per customer and improve overall brand health. She explains how Athleta, a women's and girls yoga active brand, uses customer data to understand the percentage of women with girls under 18 in their household. By segmenting data, the brand can identify potential customers who are buying girl products and those who are not yet. By targeting these customers, the brand can develop targeted marketing tactics to encourage them to buy in different divisions or categories. The data can also be used to identify customers who only buy one category and target them in other categories. This data can be used to tailor marketing strategies to specific customers and increase sales.

Marketing and Messaging

Jenelle talks about the importance of maintaining a balance of communication in marketing efforts. She emphasizes the need for testing and optimizing messaging to ensure it is effective and not cluttering the background and offers a few examples. Jenelle adds that businesses should avoid sending discounts too often, as it can teach customers to wait for discounts. By balancing promotions with overall brand health, businesses can improve profitability and brand reputation. She explains the Net Promoter Score (NPS), how it works, and how it can be used as a measure of customer loyalty and brand advocacy, which is typically gathered through surveys. NPS is calculated by taking the percentage of promoters and detractors, dividing them by the percentage of detractors. This helps track brand health and overall sentiment, helping businesses understand how people perceive their brand and its offerings in the marketplace. She emphasizes the importance of maintaining a balance between optimizing for budget, achieving desired sales, and maintaining brand health.

Brand Health Metrics

Jenelle explains the importance of brand health metrics, such as discounting addiction and customer feedback. She uses social listening, third-party research, and bespoke consumer research to understand keywords associated with a brand and how they change over time. She also highlights the value of conducting impromptu focus groups with customers to observe and learn from them. Jenelle mentions the practice of going to stores as leaders for new hires to show support and learn from the volume of customers during key moments, and the importance of staying focused on customer metrics, such as brand awareness and customer acquisition, especially for newer brands or entering new markets. She emphasizes the importance of tracking aided and unaided brand awareness over time and by customer segment to gain a better understanding of the overall brand health. 

Timestamps:

01:10: 15 plus years of experience working in retail and e-commerce

02:56: The big three growth metrics to monitor

06:42: Growth, inflation, and accelerating costs

08:40: Tracking underlying drivers

11:35: Managing cost relative to sales

14:55: Sales per square foot

23:01: Customer segmentation

32:12: Monitoring brand health

Links:

LinkedIn: https://www.linkedin.com/in/jenelle-sheridan/

Website: https://www.farvuepartners.com/

Email: jenelle@farvuepartners.com

Unleashed is produced by Umbrex, which has a mission of connecting independent management consultants with one another, creating opportunities for members to meet, build relationships, and share lessons learned. Learn more at www.umbrex.com.