by Andrzej Gorecki
[As published in Retail Directions, Issue 7, 1996]
It would be difficult to find a retail company which is not focused on
sales. Sales figures are seen as the very essence of a retail business
and as such are watched closely. Hence, the title of this article may
have caught you by surprise.
But the fact is that sales figures are of little operational value, because
they cannot be directly influenced by the retailer. They are just abstract
numbers, computed by multiplying two more elementary variables: the number
of customers, and your average sales transaction size.
This may appear to be just a mathematical permutation, but it has profound
practical implications. It means that to improve sales results, the retailer
must focus on increasing the number of customers coming through
the doors, and then on selling them more. Once these two elementary
factors are maximised, the sales figures take care of themselves. This
may sound obvious, but many retailers have spent years wondering how to
increase their sales, instead of simply focusing on getting more customers
and selling them more.
The main reason for this misdirected effort is historical. Until recently,
we haven't had the technology to track sales by transaction. Total sales
figures, sometimes broken down by department, were all we had. Even today,
we still derive the average transaction size by dividing the total sales
by the number of customers, thus incorrectly implying that the transaction
size is secondary information.
Since in reality the transaction size and the number of customers are
all that matter, the core issue is this: how can customer numbers and
transaction size be improved?
Let us start with the transaction size: to increase it, you need to sell
more to those who come through your doors. Mind you, the well-known concept
of the add-on sale is not enough. The main factor which lowers
the average transaction size is the absence of a sale in the first
place — there is nothing to add-on to. These are the people who
call in and walk away with nothing.
Few retailers pay attention to such prospects. They are rarely counted,
and usually escape the calculation of the average transaction size. If
they were to be included, exposing the real sales performance, many retailers
would suffer heart failure. Do you know how many of your potential customers
come in and buy nothing? If you don't, find out as soon as possible.
Here are four specific suggestions to increase your transaction size:
- Make sure you are in-stock. Many sales are lost when
you don't have what you claim to sell. Control your service level and
optimise your stock holding.
- Make sure that you stock what people expect to buy
from you. Many retailers who measure their out-of- stocks do so in relation
to their current range only. From a customer's perspective, this is
not good enough. If they expect to buy something in your store, you
should range it.
- Periodically review your range at a category
level, to make sure that you don't lose sales by failing to stock new
or fashionable categories. Some years ago a hardware chain decided not
to stock microwave ovens in their Home Appliances division and many
potential sales were lost. However, the chain had not even considered
these as out-of-stocks. "We don't sell microwaves".
- Educate your staff in selling techniques, and add-on
selling in particular. Make sure that you employ staff with the right
attitude; they must enjoy selling. You owe it to your customers —
you must add value to their purchases. No retail business in the '90s
can afford passive staff who just wait for someone to buy from them.
Now, let us consider the other issue: how to increase the number of customers?
Surprisingly, this is quite simple, although not always easy. There are
basically two things you can do: you can convince your existing customers
to call more often, and you can get new customers. The latter is usually
preferable, as selling more often to existing customers may merely bring
the purchase forward, hurting your sales results in the longer term.
Working with these two groups of people requires different approaches.
Your existing customers have already dealt with you; they just need to
be convinced to repeat that experience more often. This may require a
special offer or a claim that your business has improved — e.g. new
range, new services, or new store decor. Note that all such claims must
be legitimate, otherwise you will quickly suffer the consequences of lost
credibility.
As far as new customers are concerned, either they have never bought
from you or they have deserted you in the past. The 'deserters' can often
be attracted back if you admit your past 'sins', but you can only do that
if you know what the problem was, and if you have since rectified it.
Those who have never had any experience with your organisation are the
hardest to convince — they need to be attracted into what is for
them unfamiliar territory. A good way to start is to survey such people
about their needs and perceptions of your business, and to pitch your
promotional campaign accordingly; if your business is in a position to
genuinely say what your potential customers want to hear, say it.
Also, be aware that the most efficient method of attracting new customers
is via referrals from your existing customers. This requires competence
in all aspects of your business to prevent customer dissatisfaction, along
with the pursuit of excellence in one chosen area. The latter is needed
to develop a unique selling proposition, your "claim to fame" if you wish
— a strong reason for your customers to talk positively about your
organisation.
If you embark on such a multi-pronged attack, i.e. to be in stock, improve
your range, introduce new stock categories, actively offer add-on items,
attract your current, past and potential customers, your sales are guaranteed
to increase dramatically.
Conversely, those retailers who persist in focusing directly on increasing
their sales will continue to struggle. As in sport, a desire to improve
your score is not enough; you must continually improve your technique
and practice more. Your score is just a reflection of these elementary
variables.
This is why for an astute retailer the actual sales figures mean little.
It is only the number of customers and the average transaction
size which really matter. As long as these two are growing; your sales
figures will grow even faster.
Andrzej Gorecki is a Director and principal
consultant with Melbourne-based Retail Directions Group, which develops
and supplies state-of-the-art software solutions for retailers worldwide.
Copyright
(c) 1996 Andrzej Gorecki
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