Measuring store performance post-lockdown.
In this piece Phil describes performance measures for retail stores in a post-Covid environment. However, his lessons can be applied by finance leaders across any industries.
Now that states and stores are reopening, we’re noticing in our conversations with retailers that measurement is a favorite topic. And understandably – retailers want agile control coming out of lockdown. As Peter Drucker the father of modern management said, “What gets Measured gets Managed”. With doubts that old metrics and ways of monitoring are adequate, there are three main questions that are being asked: With the requirements within a store changing fast, what metrics should we be measuring stores on in the “new normal”? As the main ways of assessing performance, versus Last Year and Budget, are out the window, what is the best way to measure and target performance improvement? How should performance be incentivized and rewarded to ensure the right behaviors? These are all areas we are exploring with multi-site retailers, as well as Quick Serve Restaurants. Here are our early thoughts.
The role of the store is changing post-pandemic, and so should the KPIs we measure.
The key components that have driven profitability for most multi-site industries – Sales, Shrinkage, and (Labor) Scheduling – remain as critical to track as they always have been. There is little new here, but some emphasis will change. Even B.C. (Before COVID), retailers were starting to question whether traditional metrics like Sales per Square Foot were relevant for omnichannel customers. The priorities of the store shifted from being a pure selling channel to also a means of advertising, fulfillment, and returns. What shifts have occurred in your business our industry that warrant how your emphasis should change?
As with everything else COVID has accelerated, the different priorities of a store have seen a dramatic shift. Curb-side and deliveries are not going away anytime soon, and returns remain a problem that needs resolving.
Historically, retail has been very focused on P&L and Balance Sheet metrics even at the store level, like the mentioned Revenue per Square Foot, Like for Like (LFL) annual growth, and Inventory Turns. These paint less of a full picture for store-level management when over 70% of orders are being placed digitally and the store isn’t just a pure sales channel device anymore.
The role of the store and their people therefore changes from being all about sales to moving into a broader operational mindset. Even in stores that have already been more operational, such as grocery, the operational set of activities is only increasing given social distancing, curb-side, deliveries, etc. Stores will therefore need to focus much more on the operational factors that maximize efficiency with central and marketing teams focused more on the footfall and sales drivers transacted online. More operational KPIs are going to become more important. For instance, there are now 3 further S metrics that are rising in importance.
For retailers, store safety has rarely been a material KPI or risk. Now every retailer is seeing safety as their most important objective. The fallout from any COVID related employee or customer harm caused by unsafe practices could spell corporate disaster. As a result, making sure there are quantifiable areas you can record daily to assess safety is critical.
The store as a material fulfillment center is here to stay as curbside and delivery increase. Few retailers have the capacity to take the increased demand through their current delivery centers and even those who do are finding these centers ineffective with such volatile supply chains and social distancing requirements.
Learning through customers’ experience is going to be a crucial part of adapting to the new normal. That is, leaning into the areas that are receiving a strong response. However, as important will be employee satisfaction especially when safety is going to be such an important element of the store experience.
Although our KPI tables suggest expanding the list of metrics being tracked, this does not mean that we suggest adding a growing set of numbers and reports onto managers already incredibly busy plates. We suggest measuring these factors as they all help understand what is happening and to see whether actions taken are having an impact on the business.
The exercise of synthesis, emphasis, and prioritization remains however: based on Quorso data, people who focus on an average of 3.2 actions each week are the most productive. And it’s now harder to do that. The way we’ve done this with clients is by using Quorso’s Intelligent Analytics layer picking out the top 3-5 areas of top impact for each location. Each, when actioned, has driven 7.4% average revenue increase and 16.1% average cost decrease per plan.
With Last Year and Budget irrelevant, what is the appropriate focal point?
About this time of year, companies are often going through their re-budgeting ritual. The only plans they are completing now are those around how they will reopen. Any budgets that are reformulated are accurate by sheer luck given the inherent uncertainty in the current climate.
Of the other proxies, Last Year as a baseline is irrelevant for the next couple of years at least, given the dramatic change to the environment and shorter periods. Furthermore, last week & last month will also paint a confusing picture.
There remains only one valid reference point for measuring performance between stores: relative benchmarking within a comparable peer set.
Retail technology transformations will have to onboard new benchmarking frameworks.
A technology infrastructure to support this will need to be a core part of the accelerated digital transformation efforts all companies are undertaking. With the increased investment by enterprises in data consolidation and aggregation, these initiatives need to align with a new framework for benchmarking.
At its core, companies need a master data management structure to allow them to flexibly build out the two core areas of benchmarking:
- A Driver Based Model of the company: relative benchmarking needs all stores to be seen on a like-for-like basis and therefore performance needs to be normalized by the right drivers.
- Appropriate peer groupings: making sure like-for-like comparisons are made between similar stores.
Flexibility and transparency are key in such measurement. For instance, the right peer groupings may change in different months dependent on the underlying market trends of the consumer and the dynamics of different states across the U.S.
Many companies might be daunted about how long it might take to bring this all together, given information is often held across multiple systems in sometimes non-standard ways. At Quorso, we have found however that when executing with the right approach and technologies, such structures can be put in place in weeks.
Measurement and metrics can help drive employee motivation and productivity if used right.
With performance objectives, metrics, and measurement changing, many feel in a quandary around how to reward performance. Convoluted matrices of different metrics are being pulled together for optimal target and bonus setting. Companies should be careful of this approach, they are at best unlikely to drive performance and at worst likely to incentivize the wrong behaviors.
In the last 10-years, numerous books like Daniel Pink’s Drive, or Primed or Perform have synthesized volumes of research around what drives motivation and performance at work. The most counterintuitive part of all this research is the ineffectiveness of economic incentives (extrinsic motivators), which is most stark in times of uncertainty when creativity and adaption are needed, they could in fact be dangerous. Company inertia has prevented any of this taking off (as well as an obsession with performance commissions), but the pressures of the current environment may push many to focus on the intrinsic motivators of autonomy, mastery, and purpose. Does that mean what to measure and how to measure it becomes redundant?
Absolutely not, because metrics and measurement are crucial to the core trilogy of motivation.
The growth of task management tools and checklists has created a compliance culture at many companies. In the days ahead some trusted creativity will be essential to understanding whether adaptions and experiments the frontline take drive improvement. Again the only way to see that is to measure performance relatively.
Are we getting better? How else do we know this unless we are measuring it? The ability to see progress within the areas that make a difference allows people to achieve a sense of growth. Making progress has benefits both to work but also personally, with employees noting positive days at work 76% of the time when also recording progress.
Purpose is the highest of intrinsic motivators – the sense that you are doing something beyond yourself. Metrics are simply a cascade of the business objectives in the first place, which all should build to the sense of “why” they need to be achieved. The collective call to action of serving the customer and rebuilding profitable retail businesses is a purpose to take up arms for.
Measure what matters.
“Measure what matters” is a viewpoint that has powered the growth of some of the world’s best companies. Today what we are measuring, how we measure it, and why we are measuring it matters more than ever. If you feel we can help and provide any advice on these areas, get in touch.
Not a member-scholar yet? Join our financial community here!
Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.
For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.