KPIs for managing the new retail

Key performance indicators (KPIs) are essential metrics that every retailer needs for managing the new retail and to understand the company’s current situation. Numbers don’t lie, and KPIs can help you see which area of the business is improving, where targets are not being reached, and – most important of all – where you need to make changes to ensure the business continues to grow.

There are hundreds of KPIs, but which are the most important ones when planning for the future? Are some KPIs more valuable than others for Retailers? Here are the 10 key performance indicators Retailers need to track to succeed in the new Retail.

10 KPIs for managing future retail

1. Overstock

This represents the quantity of stock in units and in excess cost value to meet the projected demand based on the parameters established by the company. It helps us identify the products that are surplus    to the store’s needs and prescribes possible recommendations to be made.

Overstock is calculated at the SKU-store level. For example, a store may have an overstock while simultaneously placing a replenishment order from different SKUs.

2. Turnover

This is one of the cornerstones of Retail. It is calculated as the total number of commercial transactions made: in other words, the sum of all sales at the sale value in a given period of time.

This indicator on its own is not relevant. It has to be analysed in the context of all indicators to understand the origin of a problem and know how to act.

3. Transactions

One of the main goals of Retail is to maximise the volume of quality transactions. This indicator offers a graphical representation of the volume of commercial operations carried out to achieve the turnover.

If we can maximise the volume of transactions without affecting the average sales price per transaction or the number of items included in an average ticket (UPT), we can maximise the company’s turnover.

4. Basket size

This refers to a customer’s average spending per ticket in a given period of time. It is calculated by dividing total sales by total tickets (excluding returns).

As a quality target set by the company, basket size is tracked to compare and analyse sales trends.

5. Gross margin

This refers to the difference between income (excluding taxes) and the cost value of goods.

When shown as an economic amount, it refers to the contribution. When expressed as a percentage,        it means how much that difference represents over the cost and therefore refers to the percentage of gross margin obtained.

A company’s main goal is to maximise its margins, because the same turnover can yield higher margins with more efficient management of the stock cost.

6. DV (Design Variation)

This is a percentage expressing the number of models with sales over the company’s total models in a given period of time. Analysis is performed at root code level (style + colour).

The benefit of this indicator is that it measures the success of the mix in a collection over a period of time. The ideal ratio is 100%, since we expect to sell at least one unit of each model present in a store.

7. Stock turnover

This is the inverse of coverage. It shows the number of times an item is renewed in the stock in a given period of time. It compares purchase management with stock quality.

8. GMROII

This is the acronym of Gross Margin Return on Inventory Investment, which measures the productivity of inventory investment. It indicates the amount of gross margin that is recovered for each euro invested in inventory. The result should be higher than 100% since we expect to recover at least the same amount we invested.

9. Stockout

This expresses as a percentage the progression of the potential sales rate of items that fail to meet the sales target due to lack of stock.

It quantifies lost sales due to insufficient stock to meet the demand. It is therefore a guide for correcting the stock per store or increasing the depth of purchase. In other words, it operates as an alert.

10. Stock efficiency

Created by Analyticalways, this indicator tell us whether a company is generally efficient. It compares the DV, TRNand GMROII levels with their individual targets, therefore providing a clear picture of the distance to be covered to reach those targets. The distances between the target and result of each indicator are averaged out to create what is known as the stock management efficiency ratio.

If we maximise the stock turnover, collection mix efficiency and the margins, we will maximise the stock management efficiency.

By regularly monitoring these indicators, businesses can identify trends and make informed decisions that drive improvement. For instance, if stock turnover is lower than expected, it may signal overstocking or a lack of demand for certain products. In such cases, companies can adjust their inventory strategies, perhaps by offering promotions or discontinuing underperforming items.

Moreover, understanding the collection mix efficiency helps businesses manage their cash flow more effectively. If certain customer segments are consistently late in payments, it may be time to reassess credit terms or enhance communication with those clients. This proactive approach not only improves cash flow but also strengthens customer relationships.

Margins, on the other hand, provide insight into profitability. By analyzing which products or services yield the highest margins, companies can focus their efforts on promoting those items, ultimately boosting overall profitability.

These 10 KPIs for managing retail serve as a roadmap for businesses aiming to enhance their management efficiency. By leveraging data and insights from these metrics, companies can make strategic adjustments that lead to better performance and sustainable growth. The key is to remain vigilant and adaptable, ensuring that the business evolves in response to changing market conditions and customer needs.