A Shift in Thinking and Measuring May Be Required for Retailers

The next several articles will be a part of a series looking at the retail landscape and the way we measure, report, analyze, and ultimately change our business in an environment that will likely never resemble what we knew when we began 2020.

Comp is dead. (Wow, that is a bold proclamation.) Despite this fact, I expect many retailers and industry analysts will attempt to hold on to this much-loved metric. It has become unreliable and will not reflect the truest view of business trends for at least the next several years.

Retail locations experienced one of two things in the months of late February, March, April, May, and into June. If you were an ‘essential’ retailer, particularly in the food and mass merchant sectors, you likely saw extreme positive business growth over last year. Other retailers that were non-essential either were forced to close or limit their business to only curbside or delivery options. Either option likely caused a significant negative impact to their business. It is hard to generate sales when your stores are closed for business. It is no wonder we have already seen many retailers file for bankruptcy protection.

Following these months of closure and as the population has tried to resume some level of normal activity, I expect we’ll see a full range of earnings reports in the coming months - somewhere the business has come back extremely strongly, while others continue to face a severe negative impact. Mall based retailers, soft lines retailers in particular, all face new challenges in a COVID-19 influenced world.

In any of these cases, the ability to compare this year to last is nearly impossible. It simply is not a fair comparison and may not yield the right actionable steps to help manage the business effectively. If we look ahead to a year from now, the same will be true. Even without knowing what the world will look like, it is safe to say it will not look exactly like it does now. (Hopefully.) We will not have thousands of stores closed for multiple weeks in the spring - so will we be able to celebrate huge comps next March, April, and May? Of course not. Once again, it will not be a fair comparison. And depending on the actions you take to try to cycle some of the events, especially in those essential retailers, how sustainable will that be for the years to come - will you always be chasing something that is simply not obtainable?

If your business is experiencing positive growth right now compared to last year - what is driving that outcome? Which categories are booming? Where are the weaknesses? It is important to maximize the opportunities where they do exist, immediately. Capturing all of the possible upside might become a critical lifeline for the future. It may also indicate areas in which you can enhance for the future. These may be the areas your customers believe you are doing the best.

Equally important is to not lose sight of any categories and business areas that are struggling right now. You must determine whether these are areas that must be addressed for the future or whether this may be an opportunity to shift resources away from in order to further develop the areas of strength.

With comp becoming a messy and unreliable number, what should retailers begin to look at instead?

So much is tied to last year's metrics. We look at all improvement metrics as improvement to last year. Whether it is sales, conversion, traffic counts, transactions, or average order value – all of these are now compromised when comparing to last year. This presents a real challenge to every retailer – well, any business.

Is this a gift in disguise to help leaders begin to utilize different metrics to measure and grow their business?

Is this an opportunity to innovate in ways that many retailers have not done for years? Knowing that some of the traditional metrics will be misaligned provides some opportunity to try new ideas and approaches that may have been considered too risky, especially short-term, in the past. Now maybe the best chance to try new things to move in directions never thought possible because of the handcuffs of comparisons to what you did the year before.

Developing a strategy around establishing new baselines and forecasts may be the better approach to measuring your success. Moving the metrics closer to the source can also assist in ensuring you are looking for the right things and comparing them on an equal footing. Making your comparisons to localize geography will likely become more important than ever, especially when we continue to see outbreaks of the virus in different areas of the country at different times. Comparing one market to another when the environments are vastly different can cause either false alarms or unearned euphoria.

In the next several articles, I will begin to explore different thought processes and ideas that could assist in looking at the retail landscape differently and allow business leaders to have a better fix on their measures of success. In the next article, we will look at what areas of your business you may want to begin measuring differently.

In the meantime, how are you managing the inability to utilize comp as a reliable metric for business success?

I also recently discussed this topic and some of the ideas from this series of articles with Graeme Grant , CEO of Blueday, on their webinar Measuring Store Performance in Turbulent Times: Defining Your Key Metrics for 2020 and Beyond.

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