With Wall Street analyst firms and the investors they supposedly service back on their heels it is an excellent time for retailers to fix something that has been broken for some time. After years of toiling under the irrelevant judgment of comp store sales, retailers can change the game to the rules of cross-channel engagement.
Several retail and technology vendors have pointed this out during the past few weeks of economic turmoil. Retail stocks have largely outperformed the plunging market, and will most likely come out stronger from this crucible of repositioned credit and unreasonable growth expectations. But instead of looking at what Wall Street wants, which is the simplicity of short-term measurements of comp store sales, it’s time for retailers to refocus investors on the reality of the cross-channel world. Circuit City provides the best and most recent example of how not to do this. Its comp store sales were way down last quarter, and its prospects for opening new ones were dim. So they bailed. They told Wall Street analysts “we’re not reporting anything anymore” and they filled financial press releases with platitudes about serving the customer and focusing on its core business.
Circuit City can do better and all retailers can do better. Wall Street judgments are reality. But so is the cross-channel retailing environment. Comp store sales were relevant when comp store sales were the only measurement available of retail performance. Retailers have a richer data palette to work with. We see five areas that should become an essential part of all financial reporting and as a consequence provide a more accurate financial picture of the current as well as future state of any retailer.
Channel growth: Comp store sales should be part of a three-pronged reporting approach. Retailers should call out their quarterly growth online, in-store, and direct channels. Obviously this will be different depending on the business model. Amazon and Overstock would not report in-store sales. But there is no better measure of retail performance than the ability to keep pace with the consumer’s desire to work different channels for purchase, information, and returns. Retailers should be judged on how they grow in all relevant areas. Retail executives don’t manage toward an obsessive focus on comp store sales, they manage across channels. So why are they still judged so simplistically?
Conversion Rates: Online conversion rates hover around three percent. In-store conversion rates are too inconsistent to measure, but could be measured if retailers focused doing so. Conversion rates are a true measure of how attractive pricing, promotion, and service are working. Example: The 80 percent increase in online conversion rates measured recently at Urban Outfitters should say more about the strategy and practices of that operation than comp store sales. And when compared on a quarterly basis, analysts will know more about “what works” instead of the short term and potentially misleading metric of “what sold.”
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Customer Satisfaction: Customer experience, especially in a cross-channel world, can be an excellent predictor for retailers. Circuit City, for example, is investing a lot of money in sales associate technology as well as new store formats. If they reported the results of these efforts in terms of customer experience by settling on a consistent metric such as NetPromoter, it would say more about its future value than its sales of expensive electronics in an economy as tight as this one.
Traffic: Not just foot traffic. In the cross-channel world an increase in web site traffic can predict increased product research and an increased intent to purchase. A decline in web site traffic means the online component of a retailer operation has lost momentum. Once again, all these indicators can and should be judged holistically.
Customer Engagement: Analysts should know open and click through rates of marketing campaigns. They should know metrics about call center activity. They should know loyalty program registrations and points redeemed. They should know email response rates. All these metrics show the willingness customers have to take a relationship beyond simple purchases. Customer engagement is tricky to measure as an aggregate behavior. But it is a potentially powerful indicator of long-term retail financial fitness.
The Wall Street focus on comp store sales will not change in a day. And analysts will continue to weight those results heavily. But at the very least retailers can begin to prepare more relevant reporting information, and begin to work on a metric and an attitude that needs to be dragged into the cross-channel world.
