Retail Sales– Metrics, Analytics, Seasonality’s Critical 20% to 40%: Robust Christmas Holiday Retail Sales– Really Do Matter…

Retail sales are the life blood for retailers and a big component of the ‘total gross domestic product’ (GDP)… Hence, any extended drop-offs in consumer spending can trigger serious economic issues, even a recession… and, at minimum, lower retail sales receipts can force companies to take drastic action, such as; reduce expense, lower head count, close stores…

While retail companies can use a mix of standard and specialized statistics, the industry often focuses on a few universal metrics, for example; the most common retail statistics include; sales revenue growth, gross profit percentage, sales returns and allowances, same store sales, employee turnover… These metrics can provide management and other stakeholders with an insight of the inner workings of the company and also the ability to benchmark against other companies…

Retailers survive and thrive on profit margins, but to meet financial expectations they must deliver exceptional customer service while striking a balance between workforce costs, customer demand… retail management is truly a balancing act… According to Quentin Gallivan; the use of analytics is a critical force in growing sales, and it help retailers stay in front of new breed of consumer, omni-channel  shopper, and avalanche of data… This transformation is in large part driven by advances in mobile, digital, social media and location-based technology.

Consumers are shopping across multiple channels from brick-mortar stores to catalogs, websites, mobile devices… The omni-channel shopping revolution has put consumers in charge, and retailers are scrambling to adopt a single, seamless approach with consumers– anytime, anywhere, across all channels... According to Craig Twyford; retail sales analysis provides insightful information for making the best decisions in highly competitive markets… Although the numbers might be scary… the data just might provide the information needed to make the right strategic sales adjustments– that will get you back on track...

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Understanding Retail Sales Data: The ‘Retail Sales Index’ is important economic indicator: On the 12th of every month, the U.S. Census Bureau releases the ‘Retail Sales Index’, which is a measure of retail sales from the previous month as determined by a sampling of stores both large and small across the country… The report actually lists two numbers: The first is ‘Retail Sales’ and the second number is ‘Retail Sales Ex-Auto’, or without automobile sales included. The reason is auto sales can skew the overall number since they are big-ticket items and subject to seasonal fluctuations…

Retail sales figures are considered very important because consumer consumption spending represents two-thirds of the total U.S. economic activity; and the ‘holiday season’ accounts for between 20% and 40% of typical retailers’ total annual sales and 20% of their profit. In order to understand holiday retail sales, it’s important to look at the ‘seasonal adjustment factors’ used by the ‘U.S. Census Bureau’s Advance Monthly Retail Sales Report’. The ‘seasonal adjustment factors’ measure the extent to which retail sales ‘usually’ change month-to-month by looking at the past. For example; when U.S. Census Bureau reports that retail sales increased 0.5% in October from September, that estimate takes into account what ‘usually’ happens in October.

So if sales in October ‘usually’ increases by 2.0%, and if sales ‘actually’ increase by 2.5%, then the U.S. Census reports 0.5% gain on ‘seasonally adjusted basis’ (most economic indicators released by the U.S. government is ‘seasonally adjusted’ including; GDP, employment, personal income, imports-exports of goods and services). However, removing seasonal effects makes it easier to assess the underlying trend in the data; whereas, looking at the ‘seasonal adjustment factors’ tells us what ‘usually’ happens to sales on a month-to-month basis…

In the article How Is the Happy Holiday Sales Going Anyway? by Steven Hansen writes: The last quarter of the year is the strongest period for retail sales – all due to ‘holiday gift giving’. Reading the Retail Sales Report headlines, e.g.; ‘November’s seasonally adjusted retails sales were up 0.7% over October’… may seem like some pretty strong evidence that holiday purchasing is growing… But, could this growth be a distortion caused by the U.S. Census in their ‘seasonal adjustment’ process? Most likely, retail sales are actually growing but probably not at the same rate as last year. The major exceptions are autos whose rate of growth is up, and department stores whose rate of growth has contracted almost by 5% from last year… Do I trust this data?

I trust nothing that is called ‘Advance’ (i.e., U.S. Census Bureau’s ‘Advance’ Monthly Retail Sales Report) from any government reporting agency. It could be too high, too low, but hardly ever just right. The only confidence level that I can assign to this is that the ‘unadjusted growth’ is within the expected range. It could be that the computer program is fudging the numbers a bit by fills in data, using the current trend lines when the data is not available.

This is how ‘advance’ data (and, e.g., the ‘U.S. Jobs Report’ which is released too far in advance…) miss economic turning points… Since I am in a complaining mode– you will note that I did not use the word– ‘Christmas’ in describing the Christian gift giving ritual responsible for the ‘holiday season’ retail sales increase. Christmas is religious and that’s bad, holidays are good. But without Christmas, there is no retail cheer in the period we now call the ‘happy holidays’.

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In the article Happy Holidays Online by Katie Evans writes: While the web enjoys a robust start to the holiday shopping season, the total retail sales fell by 2.7% compared to last year… According to figures from IBM; U.S. ‘online’ sales are up 14.5% compared with last year… mobile ‘sales’ are accounting for nearly 18% of total online sales. Tablets are driving 11% of all online sales, nearly twice that of smart phones, which are accounting for 6.8%… Mobile ‘traffic’ represents more than 30% of all online traffic. Smart phones account for 20.7% of all web traffic, compared to tablets at 10%… Also, tablet users also are averaging about $133/order, versus smart phone users who are averaging $117/order…

According to Akamai; retail web sites in North America are processing more than 9.1 million page views, up 283%, over a typical day… and estimates that e-commerce spending increased 20% over the same days last year… According to ComScore; EBay, Amazon, and Wal-Mart were the top three most-visited retail web sites… According to Paula Rosenblum; we’re coming ‘round the bend to the final lap of the 2013 Christmas selling season. On the surface, it appears sales are reasonably strong, with National Retail Federation (NRF) reporting that November sales up 3.9% against last year, and the expectations that this  season will net out at or above the trade association’s holiday forecast, which was also for 3.9% growth.

These numbers exclude automobiles, gas station and restaurant sales. On the surface, this is very good news for retailers and consumers alike, as retailers pulled out all their promotional stops, and consumers hopped on board to grab the great deals.  According to the U.S Census Bureau sales report; the most robust year-over-year gains were seen in big-ticket sellers like electronics and appliance stores (8% over last year), and furniture and home furnishing stores (9.4% over last year)…

In the article Surprising Stats About 2013 Holiday Shopping by Selena Maranjian writes: Ah, the holiday retail season– it’s when most of us scurry around shopping for gifts and trying to take advantage of the best sales we can find. You’ve been here before, and you know the score: Or, do you? Here are a few interesting details you may not know about this year’s winter spending dash:

According to the National Retail Federation; on ‘black Friday’ store sales were down $1.7 billion or 3%… also, ‘black Friday’ was this holiday season’s first billion-dollar-plus ‘online’ shopping day with the total ‘online’ take for the day of $1.2 billion or 15% over last year… also on ‘black Friday’ Walmart’s website had over 400 million pages viewed and 53% of those were perused from smart phones or tablets.

The number of purchases made via mobile devices tripled the previous year’s level… Here are a few ‘believe or not’ items that you might find interesting: Fully 57% of parents reported that they were going to take on debt over the holidays in order to buy gifts for their kids. Interestingly per a recent survey, those with household incomes of less than $35,000 said they were willing to take on an average of $700 in debt, while those bringing in $75,000 or more were thinking about $300…

Many Americans, 36%, in one survey said that buying gifts was more important than sticking to budget or not taking on more credit card debt… 90% in a survey of Americans planning to buy gifts this season, almost a third of them (31%), had no predetermined spending limit… Interesting because a fully 55% of adult Americans surveyed in September had not yet saved any money for the holiday shopping season…

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So, what are the most important statistics-indicators-measures for retail sales? The most obvious one is sales volume, and this needs to be measured against the same period in the previous year or years… Two other statistics that are commonly used by retailers are; ‘units-per-transaction’ (UPT) and ‘average-transaction-value’ (ATV). Essentially, UPT is the ‘number of units (SKU’s) sold during a set period’ divided by the ‘number of customers in that same period’, e.g. 650 units sold on a day that saw 223 customer transactions would give a UPT statistic of 2.91.

That is to say that the average customer bought 2.91 items. That would be disastrous if you were a grocery store, but excellent if you were a jeweler… ATV on the other hand is the ‘total sales for a period’ divided by the ‘number of customers in that same period’; so a day with sales of $4,325 and 87 transactions would give and ATV statistic of $49.71, i.e., the average customer spent $49.71… Other important measure of a retail sales are: ‘same store sales’, which is a key retail barometer retailers use to gauge the effectiveness of their stores…

This information can be used to gauge-compare the relative effectiveness and sales productivity of a retailer’s stores. Still another measure is ‘sales per square foot’, which shows how effectively a retailer is using store space to generate sales dollars. This is also a measure of sales efficiency and productivity… also; ‘sales per square foot’ is a key benchmark when comparing direct retail competitors, for example; comparing Walmart and K-mart: Walmart’s ‘sales per square foot’ is about $422.00 versus K-mart’s $235.00…

Still another measure of retail sales effectiveness is ‘gross margin return on inventory investment’ (GMROII), which is a ratio that measures a retailer’s ‘return on every dollar that is spent on inventory’. This formula measures the productivity of inventory and the relationship with total sales, gross profit margin, and dollars invested in inventory… GMROII can be used for the entire store, departments, or an individual merchandise items. With GMROII, you can compare the relative value of merchandise and draw conclusions about where the retailer should be targeting efforts to achieve maximum profitability…

Retailers collect huge amount of data, but– how is that data translated into actionable information and better decisions? According to some experts the key is analytics: The opportunity to achieve competitive advantage from better ‘analytics’ is enormous, and by using analytical tools retailers can:

Develop close relationships with customers based on a deep understanding of their behaviors and needs; Deliver the targeted advertising, promotions and product offers to customers that will motivate them to buy; Balance inventory with demand so you’re never out of stock or carrying excess inventory; Charge exactly the price that customers are willing to pay at any moment; Determine the best use of marketing investments; locate stores, distribution centers, and other facilities in optimal locations…

According to Kelly Kennedy; it’s Moore’s law of marketing: The aggregate amount of data available to retailers– doubles every two years… And, the big challenge for retailers is to gain insights for this data, which allows them to– find, target and retain their ideal customers…