In recent years, retail has witnessed a major upheaval.
Increases in consumer choice, online shopping, and greater competition have caused major changes and challenges within the industry. These changes have resulted in retailers shifting the way they function and rate success.
Traditionally, there existed two core retail success metrics- growth and profitability over competition.
But today, these metrics are not enough. Today, retail professionals needs to change both their mentality and the tools they rely on to assess business health and efficiency. Tools like DataRails can be game-changers.
“While retail continues to evolve and adapt to changing consumer preferences and new technologies, it is increasingly critical to develop newer, more relevant metrics to accurately value and measure retailers. The current suite of metrics were built for a time that no longer exists. The lines between channels have blurred beyond recognition, making it challenging to properly attribute a sale with these outdated metrics. As this work shows, we need a common set of updated metrics that more accurately measures retailer performance and captures the full value that retailers are creating.”
-Matthew R. Shay, President and CEO, National Retail Federation
In a recent report, Deloitte identified appropriate modern retail metrics. They divided five metrics into two categories: value creation and value capture. We read through their report and extracted the key points you need to know.
Value Creation (customer lifetime value)
These metrics are dynamic, consumer focused, aligned to daily retail operations, and forward looking.
1. Sales/unique customer
Addresses how much wallet share retailers can drive across their consumer base, through multiple purchases per year or less frequent, large-scale purchases.
Why it is important: Key valuation metric for growth companies that brings a distinct consumer focus at a time when consumers have increased power.
What it measures: Retail sales growth and market share, unique customer counts (acquisition, growth, retention).
What it doesn’t measure: Profitability and margin, alternate revenue sources outside of retail sales (e.g., third party, financing, fees, subscriptions, memberships).
2. Retail profits/ transaction
Captures how profitable companies’ retail operations are on a per-transaction basis. Channel agnostic.
Why it is important: Provides a common way of looking at all retail operations across all channels.
What it measures: Retail profits, excluding ancillary services, margins (including gross and operating margins), fulfillment costs (shipping, delivery, in-store, pickup).
What it doesn’t measure: Alternate revenue sources outside of retail sales (e.g., third party, financing, fees, subscriptions, memberships), back-office expenses, corporate overhead.
Value Capture (Enterprise value)
These metrics are dynamic, drivers of enterprise value, and holistic.
3. Revenue growth
Provides a top-line view that accounts for how a company is growing across its various operations and revenue streams.
Why it is important: A channel-agnostic view of top-line growth from all revenue sources.
What it measures: Revenue growth for all retail operations (online, physical) and non-retail sales (memberships, fees, and technology services).
What it doesn’t measure: Profitability, channel-specific sales.
4. Free cash flow
Provides insight into an organization’s controllable cash flow reflective of its current investments.
Why it is important: Provides insight into available resources to fund future operations and investments; shows the amount of cash available to shareholders.
What it measures: Profitability and investments across all areas of the business, the company’s ability to distribute earnings or reinvest in the business.
What it doesn’t measure: Specific retail operations information, how cash is being used, distributed, or reinvested.
5. Return on invested capital
Focuses on the importance of investing in modernization of current operations to keep up with industry changes.
Why it is important: In the face of disruption, consumer-facing companies need to stay ahead of changes in the industry.
What it measures: Efficiency in capital allocation toward profitable investments, the need to reinvest to drive sustainable and profitable growth.
What it doesn’t measure: investment types.
Change your perspective.
“In our business, the highest-cost thing we do is attract and onboard new clients. So why wouldn’t we be driven to increase the loyalty of those clients? This isn’t differential calculus. When customers leave, you have to replace them, and we’d prefer to avoid that expense.”
-Jack Brennan, Chairman, Vanguard
The purpose of relevant metrics is to help retailers develop a more accurate understanding of their business. How can organizations go about digging deeper into their numbers? The best way is to adopt tools that allow you to examine these industry-relevant metrics.
DataRails is one such tool, and Bauer Hockey is just one of many organizations leveraging the solution to improve their finance function.
With DataRails, the hockey equipment company obtained instant insights into the performance of its operations. “The system allows us to drill down and see trends and actionable insights in order to make the decisions that improve the performance of our company’s operations,” said Rob Grasso, Director of Global Sales Operations. Bauer Hockey can now focus on getting insights out of their data, as opposed to spending the time collecting and organizing it.
“DataRails transformed our consolidation process and helped us use our data more strategically.”
-Rob Grasso, Director of Global Sales Operations, Bauer Hockey
DataRails allows finance professionals to access and leverage financial and operational data independently, regardless of technical competency. Self-sufficiency means the finance team can easily support planning, analysis and reporting needs on-the-go to drive faster and more effective decisions.
Inspect a cell-level audit trail, compare any two spreadsheets, enjoy full version control, and perform variance, horizontal, and vertical analyses. Slice and dice data as you wish to discover actionable insights. All this results in a better understanding of the wider business picture and financial health of your organization.
DataRails is a FP&A software that empowers each finance professional to independently work with data and deliver actionable, data-driven insights. Finally, count on numbers you can trust and reduce inefficiencies without having to change how you work on Excel. With DataRails, strengthen the connection between finance and operations to drive better organizational decisions.