“The Weakest Link”: Examining Chain Store Productivity
By Allan Pulga
Managing a chain of retail stores is similar to coaching a sports team. Different store locations, like players on a team, perform at different levels. How do you determine which “teammate” is underachieving and how can you improve its/his performance?
“A challenge for any executive responsible for more than two stores is the realization that you are only as good as your weakest store,” wrote the consultants at Dionco in their Microsoft-commissioned report: The Weakest Link – An examination of chain store productivity with a 4-step process to address problem stores.
The report outlines four steps to identify problem stores and make meaningful changes to enhance their productivity. In the end, the overall performance of the chain – the ability for the “team” to win – increases dramatically.
1. Identify the measures you will use to asses store productivity.By surveying a number of owners of small chain stores, the researchers found that productivity is the measure of choice in comparing store performance.
To assess productivity, store owners measured the following (in order of importance):
- store margin contribution
- sales per square foot
- net profit (store)
- average transaction
- items per ticket
- conversion rate and/or traffic
When a store fails on three or more of these measures, it is considered a weak performer.
2. Assemble that data for the past three years (or longer if you have it) and rank the stores’ performance and identify the weak performer(s).- Each store’s operating margin is calculated by taking the gross profit of the individual store and subtracting the operating expenses of that store.
- Sales per square foot is simply total sales of the store divided by selling area in square feet.
- Net profit by store is the store contribution margin minus a pre-determined share of company overheads.
- Average transaction: AT = total store sales / total store transactions
- Items per ticket: IPT = total items sold / total store transactions
- Conversion rate: CR = total store traffic / total store transactions
3. Make operational changes to improve performance and assess the results of the changes.Once you have analyzed store productivity and identified the weak performer(s), changes need to be made. The report makes a number of suggestions, which are best implemented by store managers.
- Store operating margin low?Make changes to address: occupancy cost (rent, maintenance, utilities), payroll (staff hours, salaries), other expenses (bank charges, insurance, supplies, etc.), excessive markdowns/allowances at POS.
- Sales per square foot low?Prepare a core inventory list and test the store in stock rate. Consider re-setting the store fixtures. Consider reducing the size of the selling area.
- Net profit low?Try using a weighted assignment of overheads. Only assign direct overheads that can be rightfully charged to the store.
- AT/IPT low?Increase training on suggestion and trade up selling. Make AT/IPT a critical performance measure – post it everyday in the back of the store and encourage staff with contests/bonuses based on AT/IPT.
- Conversion rate low?Install traffic counters. Balance peak traffic times to peak staff times. Establish a customer/salesperson ratio (i.e. ideal is no more than 5:1). Conduct exit interviews with non-buyers to find out reasons for not buying.
4. If no significant change occurs, decide to either close the store or change the concept (possibly make it a clearance or outlet store).“It is crucial to the health of your company that you critically and constantly examine the performance of all your stores and identify those stores that are not meeting minimum profit goals,” says the report.
“The best measures to keep an eye on weekly are SPSF and the AT, IPT and CR measures. Often these will begin to turn bad long before you can see it on the store contribution report. So, look at these measures on a weekly basis and take action before the store cannot be saved.”