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The Trouble with Traffic: What Retailers Can Learn
What are the right numbers?.
by Mark Ryski
(August 6, , 2012)
(Note: Mark Ryski is author of
Conversion: The Last Great Retail Metric and When Retail
Customers Count and founder of HeadCount Corporation.)
Whether same-store sales are up or down,
analysts want to know what drove results. If you've listened in on
an earnings call for a major retailer lately, undoubtedly you've
heard the question: was it ticket or traffic?
It seems Wall Street analysts who poke and prod retail executives
during the sometimes contentious Q&A sessions have distilled the
"what drove same-store sales" question down to these two variables
-- either more people coming into the store and/or selling more
stuff to the buyers.
The "ticket or traffic" question is certainly relevant, so when
analysts ask, retail executives are compelled to answer. Answering
the "ticket" part is simple enough -- any POS system can produce the
answer to whether average ticket values have increased or not. But
what about traffic?
While virtually every retailer provides an answer to the "was
traffic up or down" question, here's the rub: most retailers don't
actually measure traffic in their stores. How's that possible?
Simple: traffic, it seems, has more than one meaning.
When a retailer is asked if traffic is up or down, there's a very
good chance that the answer provided actually refers to the chain's
"transaction count" or what is sometimes ambiguously referred to as
"customer count." No one seems to probe on this so, by default,
transaction count has become an acceptable proxy for store traffic
count. But there"s another rub: transaction count is not the same as
Transaction Counts vs. Traffic Counts – Hits vs. At-Bats
To say that transaction count represents a reliable proxy for store
traffic is analogous to saying that hits are a reliable proxy for
at-bats in baseball. Yes, the two stats are related, but they are
not proxies -- not even close.
If baseball statisticians only tracked hits, without considering
at-bats and batting average, how much less would we understand about
the greatness of players like Ty Cobb or Babe Ruth? A lot less. The
same is true for retailers. Transaction counts (hits) may be up, but
knowing if it was a result of an increase in store traffic
(at-bats), or that the retailer was more effective at converting the
store traffic it got is an important distinction. This is not a
subtle point. Here’s why:
Why Store Traffic Matters
Store traffic is a measure of all the people who visit the store,
including buyers and non-buyers. Traffic is a leading indicator that
tells us something about a chain's sales opportunity -- more
traffic, more opportunity. If traffic is trending up, this is
clearly a positive sign. It suggests that the brand is in favor and
opportunities abound. The converse is also true. If store traffic is
waning, this is disconcerting and it could indicate that the banner
is falling out of favor. The number of sales opportunities is
decreasing. The problem with relying on transaction counts as a
proxy for traffic is that they could be going up regardless of
whether actual store traffic is going up or down. To understand this
apparent paradox, you need to consider the retailers' batting
Conversion Rate – Retail Batting Average
As mentioned, store traffic count defines the sales opportunity and
is analogous to at-bats. Transaction count represents buyers only
and is analogous to hits. So, then, a retailer’s batting average, or
conversion rate, is calculated by dividing the transaction count by
the store traffic count -- just like in calculating batting average.
Store traffic and conversion rates tend to be inversely related.
When store traffic falls, associates are able to deliver a higher
level of service, check-out lines are shorter, and generally it’s
easier to buy. The transaction count often goes up, despite the fact
that there is actually less traffic in the store. In this case store
traffic didn'’t increase, but if the retailer only has transaction
counts to rely upon, then he reports "traffic is up.". But it's not
and all parties - the retailers and the inquisitive analysts – seem
to tolerate the ambiguity.
Don't Ask, Don't Tell
One Wall Streeter told me that you can't ask a retailer about
traffic counts if they don't track traffic in their stores. True,
but you also can't have two definitions for this basic metric
either. If you want to ask about transaction counts then ask for
transaction counts; if you want to ask about store traffic, then ask
for store traffic. This shouldn't be open to interpretation.
There is a simple way to inject clarity into what has become a
convoluted question. Instead of asking retailers if it was "ticket
or traffic" that drove results, analysts should ask if it was
"ticket, traffic or conversion." While most retailers don't track
store traffic and so won't be able to answer, at least it will be
clear that they don’t and you will know they mean transaction count
-- which on its own tells us little about what drove results. As for
the retailers who do track store traffic and measure conversion
rates, you will have a much deeper insight into what actually drove
Retailers, and Wall Street, need to take a page out of the baseball
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