Building effective retail partnerships requires that loss prevention professionals become more involved in the business of retail. Retail analytics can provide critical information and is growing in importance when building a successful retail management model. As the role of loss prevention continues to evolve, understanding of these retail concepts will only continue to grow in importance.
Since traffic counters are part of the in-store technology ecosystem, LP personnel…masters of the in-store technology ecosystem that they are…make good conscripts to use loss prevention technology tools to help implement and sometimes even manage the traffic-counting system.
The idea is not too far-fetched when you consider that LP has plenty of expertise and experience with the existing loss prevention technology tools, such as installing structured cabling; connecting devices to internal, centralized networks; and keeping it all up and functioning. Looks like a pretty good fit to me.
However, there’s another connection between LP and traffic counting that seems to be getting some buzz that I’m somewhat skeptical about—leveraging existing LP systems to capture traffic-count data.
Using LP Infrastructure to Count Traffic—More Sizzle than Steak
While I am a big believer that LP and traffic counting…along with in-store analytics for that matter…are a natural fit, the LP experts I talk to say that the idea of using existing loss prevention technology such as CCTV systems to track store traffic and in-store shopper behavior is still very much a work-in-progress. Trying to get multiple uses from the same camera often means that something gets compromised, and so traffic counters are still largely separate, standalone systems.
Regardless of how LP gets engaged (or drafted) into the traffic-counter discussion, it’s important that the LP organization have an understanding of the business rationale for installing traffic counters in the first place; that is, the business “whys” for traffic counting, if you will.
Any retailer today still arguing against the value and importance of fundamental metrics like traffic and conversion will find themselves on the wrong side of the argument. The retail industry has reached the tipping point with respect to traffic counting…finally. Tracking store traffic and measuring conversion rates have evolved from nice-to-have to must-have for retailers of all sizes and categories.
Traffic Matters and Conversion Is Critical
Any retailer today still arguing against the value and importance of fundamental metrics like traffic and conversion will find themselves on the wrong side of the argument. The retail industry has reached the tipping point with respect to traffic counting…finally. Using existing loss prevention technology such as store CCTV systems is simply a means to support those efforts.
Tracking store traffic and measuring conversion rates have evolved from nice-to-have to must-have for retailers of all sizes and categories. While formal industry penetration data on traffic counters are hard to come by, a quick stroll through any mall will reveal that more major retailers track traffic today than those who do not. Part of the reason that traffic counting is becoming so ubiquitous is because the insights have so much practical value across so many functional areas. From store operations and merchandising to HR and marketing, basic store traffic and conversion data can help inform a multitude of important decisions. If your chain doesn’t have traffic counters installed at the front door today, there’s a very good chance it will, probably sooner rather than later. But before we get to some specific uses for traffic data, let’s start with the biggest “why”—why even bother?
What’s Store Traffic Going to Tell Us That We Don’t Already Know?
If this question has crossed your mind, you’re in good company. Many senior executives have asked me this very question. It’s especially relevant when you consider the significant investments retailers are making in sophisticated customer relationship management (CRM) and point-of-sale (POS) systems that seem capable of capturing every imaginable morsel of customer data. So, what can a simple traffic counter tell you that you don’t already know? A lot.
Traffic and conversion analytics focus on what happens before the transaction is recorded in your POS or CRM system…if one is ever recorded at all. That’s what makes traffic and conversion data especially useful. Together, they tell us about the sale we almost had—a perspective on what might have been. No transaction-based system, even the most sophisticated, can tell you about the sale you almost had. It all starts with traffic. If prospects don’t visit your store, you have no chance at making a sale. So, understanding prospect visitation is vital to understanding the sales opportunity. But getting prospects to visit your store is merely step one. Step two is “converting” the traffic into a sale.
Conversion rate (sometimes called “close rate”) is a measure of the percentage of buyers to visitors. Think of it as the store’s batting average. Conversion rate is calculated by simply dividing the number of sales transactions by the traffic counts. If you don’t know your traffic count, it’s impossible to calculate your conversion rate.
So, the big “why” of traffic counting is that it enables retailers to understand the potential sales opportunity (traffic) and helps measure how well stores are doing at capturing the opportunity (conversion rate). Without knowing something about the sales opportunity, how can you fully understand how your chain is performing? I say you can’t. Here’s a simple example to illustrate.
Let’s say your same-store or “comp-sales” are up 5 percent compared to last year. In isolation this may appear to be a good result. Without traffic data for context, we have no way to understand how good a 5 percent sales increase is. Now consider the 5 percent increase in same-store sales, but this time you have traffic data for context. What if you knew that overall traffic in the store was up 15 percent compared to last year? The opportunity (traffic) got 15 percent larger, but sales were only up 5 percent—an improvement that seemed good until we understood the opportunity. I would argue that the store under-performed versus the traffic opportunity.
Now consider the same 5 percent sales improvement, but this time we discover that store traffic was actually down 15 percent. If the traffic opportunity shrunk by a whopping 15 percent, but same-store sales were still up 5 percent, this suggests that the store over-performed compared to the shrinking opportunity. Without traffic data it’s impossible to tell if the 5 percent sales improvement is good, bad, or great. Context can dramatically change how we view results and help guide what actions we take, and that’s what makes it so important. There are plenty of other really great uses for traffic and conversion data, and I’ll review some of the most important ones.
Conversion rate (sometimes called “close rate”) is a measure of the percentage of buyers to visitors. Think of it as the store’s batting average. Conversion rate is calculated by simply dividing the number of sales transactions by the traffic counts. If you don’t know your traffic count, it’s impossible to calculate your conversion rate.
Driving Store Sales Performance
Just like a fingerprint, each and every store in a chain is unique. Think about it—each store is in a unique geographic location, it has a different staff, different demographics of the customers in its immediate market, different competitors, climate, and microeconomic conditions. You get the picture.
Stores generally don’t control traffic, but they do control what they do with traffic that comes into the store. Stores with low traffic, but higher conversion and average ticket values, need more traffic. Traffic for these locations is the key sales driver. Stores that have high traffic, but low conversion and average ticket values, need to focus on driving these metrics. Perhaps it’s staffing levels, perhaps it’s training or inventory, but whatever the driver is, we know it’s not traffic. Traffic and conversion analytics put store results in context, providing the operations team with critical insight into not only how results are being driven at store-level, but more importantly, what they need to focus on to improve results for each store.
Once you have a bead on how stores are performing relative to their unique traffic opportunity, you quickly turn your attention to improving performance, and one of the most important ways to do this is by optimizing staff scheduling. Traffic data is critical for this.
Staffing to Traffic
Scheduling staff effectively is hard, but the rewards are huge. Even with the most sophisticated workforce management tools at your disposal, the quagmire of government labor regulations, huge swings in seasonality, and the complexities of managing human capital make this one of the most critical challenges retailers face.
Staff scheduling is a double whammy. Under-staff and you miss sales opportunities and run the risk of ticking-off prospective buyers. Over-staff and you hurt profitability.
Retailers that don’t have traffic counters often rely on sales transaction counts as a surrogate for actual store traffic. They then use these transaction counts to schedule staff. The problem is that transaction counts only represent the number of people who made a purchase; they do not account for those who visited and did not buy—the missed sales.
With traffic data, retailers can schedule staff relative to the traffic opportunity that comes into the store. According to workforce management expert Larry Leibach of Workforce Insight, “relying on transaction data to schedule staff is a mistake…traffic data gives you the best, most unbiased future forecast to base your staff scheduling on.”
If retailers used traffic counters for nothing more than helping schedule staff, the investment would be well worth it. But there is so much more that can be done with the data, like gauging the quality of in-store experience.
The big “why” of traffic counting is that it enables retailers to understand the potential sales opportunity (traffic) and helps measure how well stores are doing at capturing the opportunity (conversion rate). Without knowing something about the sales opportunity, how can you fully understand how your chain is performing? I say you can’t.
Conversion Rate—An Important Measure of Store Experience
Pursuing the “ultimate” store experience has become an obsession with retailers. From online surveys and social media monitoring to good old-fashioned customer-satisfaction surveys, focus groups, and mystery shopping, retailers go to great lengths…not to mention expense…to measure the shopping experience in their stores.
While it’s undeniable that measuring in-store experience is an important thing to do, retailers often find it hard to turn the insights that come from traditional store experience measures into action that delivers better sales results. Using loss prevention technology such as store CCTV systems can help measure this.
Measuring customer experience is important for any retailer interested in driving sales and competing effectively, but to really make sense of these measures you need to understand store traffic and conversion rates.
Great customer experience scores should translate into commensurately positive in-store sales results, but the fact is they often don’t. Stores with high sales can have poor customer experience scores, while stores with low sales can have high customer experience scores. Part of the problem is that you can’t directly connect sales results to customer experience scores because there’s a moderating variable—store traffic volume.
Think about it. What’s it like to shop in a very busy store? The aisles are clogged, it’s hard to find a sales associate, and there’s a line-up at check-out; not a very good in-store experience. You can imagine that the mystery shop or customer survey results in a store like this wouldn’t be very good. However, given the high volume of traffic, despite the fact that many people have a poor in-store experience, and many probably leave without making a purchase, overall sales still look pretty good.
Now consider the in-store experience of a store that has very little traffic. The isles are free and clear, sales associates are doting on you, and there’s no line-up at check-out. It’s a wonderful in-store experience, but the lack of store traffic results in modest sales even if most everyone buys. In this case, improving customer experience won’t deliver higher sales. Rather, this store needs traffic.
Store traffic data provides critical context that enables management to better understand what’s impacting in-store experience scores, and conversion rate helps pinpoint where and when lapses in customer service are likely to be occurring. Leveraging loss prevention technology tools such as store CCTV systems helps bring the picture into better focus.
Sags in conversion rates are telltale signs that customer-service issues are occurring. By knowing where and when these conversion sags occur…by hour, by day…management can focus their efforts on where they are most needed.
Traditional customer-experience measures are still important, but store traffic and conversion data make these traditional customer-experience measures even more meaningful and actionable. The result—better in-store experience scores and higher sales. Before a prospect can have a store experience, she needs to visit the store, and that’s what advertising and promotions are largely about—getting prospects to visit the store.
Traffic counters are fast becoming a core store system, and if you haven’t gotten a call on them yet, don’t be surprised when you do. In fact, as a loss prevention professional who is looking to add value to the organization beyond just your LP expertise, perhaps you should be the one making the call to your operations and marketing peers.
Measuring the Impact of Advertising And Promotional Activity
Looking at sales results to understand the impact of advertising programs is like trying to measure room temperature with a tape measure—it’s the wrong measuring device. But that’s essentially what retail marketers do when they try to measure their advertising programs by store-level sales results. Sales don’t walk-in to your stores; prospects do. To a great extent, advertising and promotional investments are made to create in-store sales opportunities, that is, to drive store traffic. Once in the store, the question of whether a prospect makes a purchase is an entirely different matter. There are literally hundreds of variables that can make or break the sale that have nothing to do with the advertising. So the advertising may have been effective, but the sale could still be lost. Using loss prevention technology such as store CCTV systems helps identify those prospects.
If your advertising is effective, there should be a measurable impact on store traffic levels. To be clear, store traffic is not the same as “transaction count.” Lots of retailers seem confused about this. Transaction count only represents the number of people who bought, while store traffic includes both buyers and non-buyers. If you want to understand what impact your advertising is having you need to measure store traffic; transactions won’t cut it. Here’s an example to illustrate why.
The marketing team rolled up their sleeves, carefully assessed the media options, scrutinized and tested the creative, and then brilliantly executed a chain-wide, one-day promotional campaign that ran on the third Saturday of the month.
The campaign launched and the marketing team held its collective breath. The sales results came in, and they weren’t good. Compared to other Saturdays during the month, as well as last year’s comparative sales, results were embarrassingly underwhelming. Sales results for the day of the event were down 5 percent from the prior week and flat compared to the prior year. An analysis of the sales data showed that transaction count was down 5 percent and average ticket was flat. Based on these results, the big promotion was an unequivocal bust. Tragically, this is often where the story ends.
However, instead of relying on sales and transaction data only, if this retailer had store traffic data, they might discover that, despite sales being down, store traffic was actually up an eye-popping 20 percent compared to the prior week. Based on store traffic counts, this campaign clearly delivered prospects, but what happened to sales? That’s where conversion rate comes in.
Since sales are a function of traffic count multiplied by conversion rate multiplied by average ticket, plugging the results into this basic formula would reveal that in-store conversion rates tanked, and that’s why sales were down. The good news—the advertising worked. The bad news—stores didn’t take advantage of the traffic. Now how do you feel about the effectiveness of the promotion?
Conversion rate can also tell us something about how effectively we are targeting and reaching qualified prospects. For example, a highly targeted advertising campaign might not result in a significant increase in overall store traffic volume, however, a measurable increase in conversion rates could indeed indicate that the campaign motivated more qualified prospects to visit the store.
The point is this—store traffic and conversion rates, combined with transaction data, provide retail marketers with the context they need to truly understand what impact their investments are having. Using sales and other transactional data as the primary measure of advertising and promotional effectiveness is inconclusive at best and potentially misleading.
Make Sure You Are Ready
While there are other business “whys” for traffic counters, I’ve just covered some of the most important ones. Traffic and conversion are simple, but vital measures that every retailer can put to practical use. Basic traffic counters should be a core component of any retailer’s in-store system portfolio. It should be as pervasive as POS and loss prevention technology systems.
Retailers who have traffic counters and use the data and insights that come from them effectively have a competitive edge over retailers who do not. It’s that simple. So, the next time you get a call about traffic counters from a pushy store operations manager, a smart-alecky marketer, or even your mighty CIO, you’ll have a handle on why they are so interested in this data. They should be.
Traffic counters are fast becoming a core store system, and if you haven’t gotten a call on them yet, don’t be surprised when you do. Consider yourself armed. In fact, as a loss prevention professional who is looking to add value to the organization beyond just your LP expertise, perhaps you should be the one making the call to your operations and marketing peers on ways to better leverage the loss prevention technology currently used in the store.
This article was originally published in 2013 and was updated January 26, 2016.
