Do retail metrics need to be reinvented?
Retail’s traditional core metrics — same-store sales and sales per square foot — aren’t channel-agnostic and fail to account for the significantly more choices consumers have in a digitally-enabled economy, Deloitte relates in its “The Future Of Retail Metrics” study.
They also don’t offer a way for traditional retailers to compare themselves to newer models – including subscriptions, marketplaces, fulfillment as a service, in-house ad and media networks and web and cloud services – that are taking retailers’ traditional wallet dollar.
In surveys and research, Deloitte finds that rather than traditional metrics, retailers are more focused on a few common themes: growth potential, the consumer, profitability, investment thesis and the ability to invest in the business.
Deloitte has come up with five metrics it believes are: Holistic, Inclusive, Value-driving, Operational and Balanced. The first two metrics focus on “Creating value,” which is similar to customer lifetime value, and the last three on “Capturing value,” which focuses more on balancing top-and bottom-line performance with investment efficiency.
The metrics are:
- Retail profit per transaction. This metric captures how profitable companies’ retail operations are, on a per-transaction basis. It is channel-agnostic and applies to all methods of fulfillment. This measurement allows for a like-to-like comparison across companies to see which organizations are most and least efficient in managing retail profitability in each consumer interaction.
- Sales per unique customer. Addresses how much wallet share retailers can drive across their consumer base, through multiple purchases per year or less-frequent, large-scale purchases.
- Revenue growth. Offers a top-line view that accounts for how a company is growing across its various operations and revenue streams, including both core retailing and ancillary models.
- Return on invested capital. Focuses on the importance of investing in the modernization of current operations to keep pace with changes in the industry.
- Free cash flow. Helps identify how much money is available to return to stakeholders and invest in future operations.
Deloitte wrote in a statement, “Implementing and holding true to a new set of metrics should allow the entire industry to more effectively assess value creation and value capture.”
- The future of retail metrics (press release) – Deloitte
- The future of retail metrics (study) – Deloitte
DISCUSSION QUESTIONS: How should retail’s traditional metrics be modernized? What do you think of Deloitte’s approach?