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The Trouble with Traffic
What retailers can learn from baseball.
For the rest of the February 2012 issue of CRM magazine please click here
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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 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 point-of-sale system can tell you 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 don't actually measure it. Traffic, it seems, has more than one meaning.

When a retailer is asked if traffic is up or down, there's a good chance that the answer provided actually refers to the chain's transaction count, or what is sometimes ambiguously referred to as customer count. 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 traffic count.

Transaction Versus Traffic: Hits Versus 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.

If baseball statisticians only tracked hits, without considering at-bats and batting averages, 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. Store traffic is a measure of all the people who visit the store, buyers or not. Traffic is a leading indicator that tells us something about a chain's sales opportunities—more traffic, more opportunities. If traffic is trending up, this is clearly positive. It suggests that the brand is in favor. The converse is also true. If store traffic is waning, this 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 store traffic is doing the same. To understand this, you need to consider the retailer's batting average.

Conversion Rate: Retail Batting Average

As mentioned above, store traffic count defines sales opportunities 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 as you would calculate a batting average.

Store traffic and conversion rates may be inversely related. When store traffic falls, associates can deliver a higher level of service, checkout lines are shorter, and it's easier to buy. The transaction count often goes up, despite the fact that there is less traffic. If the retailer has only transaction counts to rely upon, he reports traffic is up.But it's not, and all parties seem to tolerate the ambiguity.

Don't Ask, Don't Tell

One Wall Streeter told me that you can't ask retailers about traffic counts if they don't track traffic. True, but you can't have two definitions for this basic metric either. If you want transaction counts, ask for transaction counts. If you want store traffic, ask for that. This shouldn't be open to interpretation.

There is a simple way to inject clarity into this 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 rate." While most retailers don't track store traffic, at least it will be clear that they don't, and you will know they are referring to transaction count—which on its own tells us little about what drove results. As for the retailers that do track store traffic and measure conversion rates, you will have a much deeper insight into what actually drove sales results.

Retailers, and Wall Street, need to take a page from the baseball playbook.


Mark Ryski is the author of Conversion: The Last Great Retail Metric and When Retail Customers Count. He is the founder of HeadCount Corporation (www.headcount.com).


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