How to Use Retail Data Analysis to Boost Sales

by:
on April 24, 2018

In the world of retail, store owners face the challenge of how to use the wealth of data they have at their fingertips. After all, the data you’re sitting on has the ability to give your small business a competitive advantage.

Picture this: You and your competitor both operate in the same market, have about the same number of customers and similar product price points. You also have the same amount of money to spend on advertising. So how do you end up on top? The answer lies in using data-driven insights to make smarter decisions.

Without the ability to track and analyze your decisions as well as your customers’ purchases and behaviors, your business risks falling behind. This is why retail data analysis is a powerful tool for your business.

Research shows that small businesses have yet to fully take advantage of the technologies on the market. Our findings show that 67 percent of single-store retailers still don’t have a point of sale (POS) system in place—never mind one with analytics capabilities.

However, as many as three-quarters of respondents cite sales reporting, analytics and inventory as important features of a POS system, signaling that small to midsize businesses (SMBs) recognize how critical retail data analysis is for their operations and strategies.

So what is retail data analysis, and what are the advantages of using it? And where do you even start? This article answers these questions.

What Is Retail Data Analysis?

Retail data analysis is exactly what the name suggests. It’s an analysis of everything in your business, from your sales and inventory to your customer data. It gives you the ability to effectively track customer actions, like their purchases and foot traffic in your store.

It is important to note that retail data analysis isn’t just for large retailers like Walmart and Target. Nicole Reyhle, founder of retail publication RetailMinded.com, says there is a perception among many SMB retailers that data is geared only towards big-box retailers. But that couldn’t be further from the truth.

“Data is accessible at nearly every touchpoint that consumers and retailers interact nowadays—including both online and offline,” Reyhle says.

As a result, SMB retailers can use insight collected from data to prepare for future store planning needs, including marketing, employee management, inventory control and more.

In fact, SMBs can be even more agile and nimble in rolling out their analytics efforts and react more quickly to leverage data into a competitive edge.

“Consumers’ expectations of digitally engaging, personalized and customer-centric experiences are constantly being heightened by non-traditional competitors.SMB retailers don’t get a pass on being able to deliver basic omni-channel capabilities (e.g., pick-up in store; online store inventory check) or even more advanced marketing campaign personalization (e.g., based on demographic and behavioral attributes).

Lacking these capabilities will lead to missed expectations, unsatisfied customers and ultimately, lost sales.

Dave Cherry, executive advisor of Cherry Advisory, a consultancy that specializes on retail, omni-channel and advanced analytics

Consider the case of a small business in Boston that manufactures and distributes hair products. The business recently moved its manual data analysis processes to a cloud-based platform. As a result, it saw an exponential increase in production and distribution capacity by 400 percent.

Thanks to the variety of POS software and retail analytics platforms available, you too can capitalize on easy-to-implement, cost-effective tools to make efficient moves towards growing your business.

Benefits of Retail Data Analysis

Relying on analytics takes the guesswork out of your daily operations and gives you the reality of what’s actually happening on the ground.

This is especially important because there are many moving parts in your store, from sales inventory to customer experience and everything in between. Retail data analysis provides the insight needed to make informed decisions to grow your revenue and profitability. This is echoed by Reyhle:

Nicole Reyhle

Founder of RetailMinded.com

“Data allows retailers to make better operational decisions by delivering real-time, relevant insights into their business management, inventory and, of course, customers.

Without this core insight, retailers are not as well equipped to make future decisions—therefore, risking the consequences of not being informed in their business planning efforts.”

Let’s take a closer look at the advantages that retail data analysis can provide for SMB retailers.

1. Actually Get to Know Your Customers

Dish the Fish is a fish stall in Singapore that uses Vend’s cloud-based POS and retail management platform to track sales and inventory.

Prior to using the platform, Jeffrey Tan, the stall’s owner, used to order a lot of ikan kuning (a type of fish), as he thought it was the fastest seller.

Using Vend’s POS system, he researched the hourly data to track the sales frequency among different fish and was surprised to find that the leatherjacket (another type of fish), which was slightly pricier than the ikan kuning, actually sold faster. That information proved valuable in his decision to order more leatherjackets.

vend retail pos
An overview of performance metrics on Vend Retail POS

Monitoring retail data has also given Tan the ability to be more attuned to the tastes and preferences of his shoppers.

“I can see what these customers like and I can recommend other fish to them,” he says. “You know what their tastes are like after a while. Sometimes they like it, so that’s good. If they don’t, they will tell me and I will suggest something else.”

“This is really where data makes the difference.You know more about your customers and their spending and eating habits and you can go one step further to build a relationship with them.

For me, it’s important to go beyond the transactional to the personal.”

Jeffrey Tan, Owner of Dish the Fish

Many POS systems, like the one Tan uses, track customers’ purchase history while syncing them with a loyalty program. These programs offer deeper insights into your customer’s buying habits, which can be a boon for your business. According to Accenture, 65 percent of consumers will purchase from a brand that knows their buying history.

2. Analyze Trends to Meet Customer Demand

One of the best uses for retail data analysis is to understand what customers want, when they want it—ahead of time.

An example of a fashion boutique that does that well is Dash. But it wasn’t always that way, according to Dakota DiSanto, the store’s director of retail.

During its early days, sales representatives had to manually track inventory and sales, spending over eight hours a week on tasks such as reporting sales, finding the best sellers and deciding when to reorder.

That all changed once Dash adopted LightSpeed’s POS system. By having a real-time view of stock levels and sales trends across their two stores in Los Angeles and Miami, DiSanto and her team now have the better idea of what sells best, and what and how many units to re-order ahead of demand.

lightspeed retail pos reporting
Advanced reporting in Lightspeed Retail POS

“Having LightSpeed has made it much easier to view our current inventory and our top sellers, allowing us to provide our clients with what they want, when they want it,” says DiSanto.

3. Learn Your True Costs

General manager Ostap Bosak of Marquis Gardens, a pond supply retailer in Toronto, saw firsthand the transparency and insight retail data analysis offered through ACCEO’s POS system.

His first move after evaluating data in the first year was to drop several suppliers. “We found that products from these suppliers were generating a significant part of our revenue, but we’re bringing less profit than some of our sideline products. Simply put, we were working too much to earn too little,” says Bosak.

That decision has helped him focus on his main revenue generators—the pondless waterfall kit and small pond kit. Bosak explains: “In this case, retail data analysis gives you the ability to keep an eye on how much you make versus how much effort and money you’re spending, which is basically your ROI.”

He cites another example of buying in bulk, repackaging and selling in retail. On the surface, purchasing a big bag of gravel for $1,000, splitting it into 50 small bags and selling them for $40 each seems like a good idea. After all, that would generate $2,000, which means $1,000 in profit.

However, Bosak points out, “If properly accounting for how many hours it took to split it, repackage it and then sell it, including overhead expenses, that profit shrinks by more than half.”

While every business owner claims to know what their margins are, Bosak believes that retail data analysis can help you dig down into even greater detail and give you the edge over competitors in a tight market.

Getting Started: What Data Should You Be Analyzing?

Numbers don’t lie. Analyzing key performance indicators like margins, foot traffic, walk-in rate and sales growth will tell the story of your store performance and help you make profitable decisions.

Let’s explore three essential retail analytics metrics every store should track.

(Click on a link below to jump to a section.)

  1. Sales Per Square Foot
  2. Retail Conversion Rate
  3. Net Profit Margin

1. Sales Per Square Foot

Why measure it?

Sales per square foot is the average amount of revenue earned per square foot of selling space. It is one of the best metrics for gauging the performance of your store as it determines how effectively you’re using your retail space.

What can you do with this data?

  • Improve your store’s layout: Express is one example of a retailer that took a data-driven approach to rearranging its store. The apparel store moved its sale items to the back and shifted its full-price merchandise to the front. The outcome was an increase in sales.
  • Stock up on your best sellers accordingly: Adrienne Wiley, owner of fashion boutique Covet, has a piece of advice for retailers: Monitor your sales data to decide what products to carry.

“I actually determined that I should be stocking more necklaces in my new location based on sales by category and then fine-tuning the hours by looking at sales-per-hour,” she says.

2. Retail Conversion Rate

Why measure it?

Retail conversion measures the number of visitors who make a purchase at your store. It tells you how successful you are at converting browsers into buyers.

What can you do with this data?

  • Understand why customers aren’t buying: Experiencing low sales? Long lines, poor displays or not enough sales reps could be among the many reasons why customers aren’t buying what you’re selling.

Take time to observe customers as they move through your store. How are they responding to your promotional signages? Are they struggling to find information that you’re not providing? From that you’ll be able to establish how they’re interacting with your store and identify ways to improve customer experience.

  • Develop your employees and set goals: Employees on the front lines are the heart of your business. Train your employees to always put customers first by setting goals and behaviors that reward that.

Let’s dive deeper into some examples of individual goals:

  • If a sales rep struggles with product demonstrations, start with a goal for them to demonstrate one product a day, followed by twice a day, etc. to hone their skills.
  • Make daily, weekly and monthly sales targets visible on your POS system for all employees. Vend’s POS system enables you—and your employees—to track top performers. All users will be able to monitor their progress bar of the sales target.

Once individual goals have been set, you can then proceed to establish team goals:

  • Consider setting an overall sales target for your store as well as offering bonuses to those who hit their quota. To further incentivize teamwork, individual reps will only be able to receive rewards when the entire store’s target is achieved.

Harry Friedman, founder of The Friedman Group, a global retail consulting and training company, estimates that with more effective training, most retail organizations could increase sales 15 percent to 25 percent.

Bob Phibbs

CEO of retail consultancy The Retail Doctor

“Retail sales training is the only sustainable marketing program for brick and mortar retailers, because untrained employees drive down your overall sales.
Those associates are inefficient and passive when it comes to driving a sale. That leads to lower conversion rates and lower overall sales.”

3. Net Profit Margin

Why measure it?

Net profit margin is the percentage of revenue your company makes per dollar of sales. It factors in all business costs, including marketing, payroll, transportation, etc. It tells you if you’ve made a profit or if you’re in the red for a certain month.

Often referred to as the “bottom line,” it’s a strong indicator of your business’s success and is considered to be an accurate measure of the profitability of your business.

What can you do with this data?

A low net profit margin will indicate that your costs are starting to spiral out of control. You can find ways to cut operating expenses like canceling unused services or minimizing expenditure with outsourcing to increase profitability.

Conclusion & Next Steps

Now that you have a greater understanding of what retail data analysis entails and what advantages it can provide your business, you can have your pick from the retail POS and analytics systems on the market today.

We know it can be overwhelming to decide which product is the best option for you. Fortunately, our Software Advice expert advisors are available for a free phone consultation at (844) 687-6771 to guide you through the process of selecting a POS or retail analytics system best suited for your budget and needs.

In the meantime, we also suggest reading our buyer’s guide for retail analytics software, which provides more detailed information on the analysis tools in the market.

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