Shopper conversion is more than just a formula

Such an odd title to an article you say? It might be if it wasn’t for the broad misconception that shopper conversion is still a simple calculation of transactions divided by traffic (Conversion = Transaction / Traffic).  As we talk to hundreds of retail executives, it still amazes us how few actually understand what conversion really means and more importantly why it matters.

According to a study done by RetailWire, 41% of retailers (and very few, if any, manufacturers) know how many shoppers pass through their doors – today’s definition of conversion.  And even worse, only 13% use that basic information to make adjustments in-store to increase sales and loyalty. So why is this so important? Well, based on our customers’ experiences and the success of online retailers now opening brick-and-mortar stores, critically important. Retailers like Amazon, Warby Parker and Bonobos understand what conversion really means (hint – it’s more than transactions / traffic). More than that, just like online, they use it to test and learn to drive sales per square foot.

Understanding the Value of Data

It’s been reported that Bonobos has 3 times the sales per square foot of its parent company, Walmart, according to Brandchannel.  That’s because Bonobos created the concept of Guideshops, showroom style shopping where men are provided guides to help them figure out what they should buy. However, the men leave empty handed as purchases made are sent directly to their homes.  While this is not an article discussing the continued success of Bonobos or online retailers moving into brick-and-mortar, it’s one that discusses how much of their success comes from understanding the value of data and using it to change the in-store experience.

The Blind Spot in Shopper Conversion

So, let’s get back to our definition and discussion of shopper conversion.  Yes, retailers can and should count the number of shoppers that enter their stores. And they should obviously know the number of transactions at their stores.  This is still the foundation of shopper conversion and provides some general metrics to what is happening. However, it does little to help determine the potential opportunities to increase sales. This is the “blind spot” most retailers run into every day. More importantly, if you only know the number of shoppers that enter your doors and the number of transactions, you are blind to understanding the metrics you need to make intelligent decisions that directly impact sales and loyalty.

Exposing the Gap

Now, let’s take the next step in defining conversion and more importantly, how to “fill in” the “blind spot.” To start, let’s say you are a furniture retailer and you know how many people walk through your door each day. You may also be calculating conversion as transactions divided by traffic, but unlike the majority of retailers (87%, RetailWire) you are trying to use that data to make adjustments to the flow of your stores. Let’s also assume your current conversion rate is hovering around 30%, which means 70% of shoppers are leaving without purchasing anything. It’s certainly easier and less expensive to convert traffic already in the store versus driving new shoppers. What are you to do?

The answer is simple…learn more.  Let’s say you know sofa sales are low compared to previous years and certainly compared to the industry average. So, you want to start investigating the sofa department. The opportunity is to track shopper behavior to help with decisions about sofas. In addition to shoppers walking through the door, you want to know how many shoppers went by the sofa department. And of those that walked by the sofa department, how many walked into that department? And of those that walked into the department, how many sat on a sofa (a precursor to purchase)?  Then, of the transactions that day, how many were sofas, which you most likely know.

In order to have a fighting chance at making changes and increasing sales, you need the ability to quickly view that level of data along that entire sales funnel in the sofa department. I’d suggest you would no longer have a “blind spot” in the sofa department, and even better, you’d have a chance to make changes and increase sales.

Affecting Real Change

Now that we’ve exposed the gap, let’s continue the example. Say that you found out of all the shoppers that walk into your store, a good 60% are walking by the sofa department.  But of those 60%, only 10% are stopping and walking into the sofa department. And of those 10%, no one is sitting on a sofa. Why not? Is it the location of the sofa department? Not in this instance since a good percentage of shoppers are walking by that area of the store. With your new found insight of only 10% of shoppers walking into the sofa department, it’s clear there is a merchandising, product, promotion or messaging issue in the department. It doesn’t appear that the products are either well merchandised, or there’s a lack of compelling messaging or promotions to drive shoppers into that department.  Armed with detailed data (not opinions or broad metrics), retailers start to make changes and measure the impact on sales.

There are many formulas and metrics for retailers to understand when operating retail stores. It is more critical now than ever for traditional brick-and-mortar retailers to understand what many successfully e-commerce turned brick-and-mortar retailers have learned for many years – the power of metrics.  Getting a level of metrics and using it to your advantage is the best way to grow sales, and more importantly, sales per square foot. If you don’t believe it, check out the success of retailers like Bonobos.