For the quarter ending July 2013, Thomson Reuters put the average comp sales gain among reporting retailers at 1.9%, which is relatively flat compared to Q2 2012. Here are Q2 comps reported from several retailers:
- Macy’s – Down 0.8%
- Walmart – Down 0.3%
- Urban Outfitters – Up 9%
Top performers for the quarter included home improvement stores which are benefitting from a stronger housing market. Leading the way were Home Depot, up 6.9% and Lowe’s, up 5.3%.
Department stores saw smaller gains with an average comp increase of 2.6% across the category, with Nordstrom on top at 6.7%.
And although purely an online play, Amazon continues its upward momentum. Online sales still make up a small percentage of overall sales, but the upward trend in e-commerce is having a stronger impact on revenue for those retailers which have put their full weight behind e-commerce vs. those which have not committed to an omni-channel strategy.
That said, why are some companies increasing comp store sales and others are not?
First, let’s consider the metric of Comp Store Sales.
Why Comp Store Sales?
Year-over-year comp store sales is the de facto measurement used to track retail growth as it eliminates incremental new store sales and accounts for seasonality.
But to increase comp store sales, at least one of two key factors must increase: store traffic and/or the conversion rate of shoppers.
As I read through the spate of disappointing earnings, particularly among teen retailers, one element was consistently cited as a contributing factor to poor earnings and comp store sales: store traffic. Yet, according to ShopperTrak, shopper traffic in retail stores and malls was up 6.9% in May 2013 vs. May 2012, flat in June 2013 vs. June 2012 and down 2.3% in July 2013 vs. July 2012. Although traffic is starting to trend downward, it is not as precipitous as the downward comp sales trend reflected in recent earnings calls.
If in fact mall and store traffic is declining, what can retailers do to increase comp store sales?
The answer is simple. Convert more of the customers that are coming into the store into paying customers. After all, not all retailers announced declining comps for Q2, so some are clearly converting at a higher rate and are gaining share.
Although conversions are critical, according to Retail Customer Experience, only 35% of retailers track conversion rates in their brick-and-mortar stores. Calculating conversion rate is simple: Divide sales transactions by the number of people that came into the store. If you count 200 people coming into the store and 100 transactions, your conversion rate would be 50%.
Poor conversion rates can be attributed to a number of factors including inadequate staffing and long lines at the checkout counters. However, the two primary contributing factors to low conversion rates are out-of-stocks and poor merchandising. If you don’t have enough of the winning products, or never had the right products to begin with, your conversion rate will always suffer.
Turning traffic into conversions
Understanding why people don’t buy is difficult to ascertain. However, it is clear that many customers are leaving without buying because the store simply didn’t have the products they valued.
Adjusting inventories to reduce out-of-stocks and filling the floor with the right products is no longer a guessing game. It can be done in near real-time to impact existing products and to make future buying and merchandising decisions.
First Insight can help you understand how to run your business in anticipation of what the market is going to do…not to react to what’s already happened.
When you think like your customers by listening to them, more of the traffic will convert from browsers to buyers.