We need to talk about metrics; they aren’t all created equal. Metrics are the calculated measures used in analyzing and measuring the movement of inventory from source to store and ultimately to customers via sales.
Fashion retail businesses use metrics pervasively throughout their planning, buying and supply chain process. At the base level these metrics are required to empower the teams planning and buying merchandise with the right intelligence to be able to act incisively to improve the business performance.
Too many metrics
In today’s age of data overload it’s not uncommon for fashion retail businesses to have a vast set of metrics in work. It’s understandable. In our experience, retail merchandisers are analytical, especially in fashion retail merchandising teams. In the quest to better understand the patterns and trends more & more metrics are created to better measure & report at the lowest level.
The issue: the metrics that matter often get lost in the noise. With more and more metrics being added and discussed in the business it can diffuse focus and cause confusion around the core metrics driving the business outcomes that are most important including stock turn and full price sales.
Solution: create a focus across the value-chain on the key metrics that are critical to drive the desired business outcomes.
Metric misalignment
Typical metrics used to measure individual product and product category performance are sales units and sell-through rate (the percentage of sales over stock), whilst topline metrics used to measure inventory & business performance include stock turn, sales growths, gross & operating margin. Often the lower sets of metrics are not aligned with those being used at the top. What this looks like in practice is that buying & planning teams are armed with sales units & sell through rates that are not connected to the topline results required by leadership like inventory turn & operating margin. As a result those making the granular calls on products are not optimizing for the topline business results.
Solution: Create product and category level metrics that are connected to the topline business performance targets like stock turn. This focuses the efforts of the merchant teams and drives the business results required by leadership.
Merchandise performance
The buying and planning teams need to be able to clearly and quickly discern between a good and bad seller if they are to improve the desirability of the merchandise and invest in the right ranges and product categories going into store or online. What is a good seller? This needs to be established in the context of the type of retailer, but in fashion selling products out quickly at full price and in the highest volume is a big part of what drives success.
Creating a clear set of rules that can be implemented across the value-chain to give everyone working in it a clear view of the performance of products and categories. Clear merchandise performance metrics eliminate confusion & bias and provide clarity on the actions & investments that will delight customers and drive profitable growth.
Sales units & sell through rate often can’t account for inventory that has been discounted & doesn’t have a unit time measurement for sellthrough. For example, end of season sales are typically where you have your best sell through, but aren’t good indications of what merchandise performed the best across the season.
Solution: Retailers need to establish a rating system for good and bad sellers and distribute this across the value-chain to create a pervasive alignment behind the core function of a fashion retail business: offer customers more of what they want and less of what they don’t.
Precision is key
Sell-through is a vital metric in fashion retailing but not all sell-through metrics are created equal. If you have stock of a product being received into stores after the initial drop it will skew the sell-through and give a false reading on product performance. Excel and traditional BI are limited in this arena and to really create precision sell-through metrics that cater for fluctuations in the stock levels you need to leverage more powerful calculation engines.
Solution: Retailers need to review the stock receipts in the prescribed measurement period when calculating sell-throughs in Excel or BI, if you have more than one input of stock chances are your sell-through measurements are skewed.