There seems to be a tremendous amount of confusion between retail Shoppers or Customers...or, stated differently Traffic versus Transactions. Not understanding the simple concept of 'traffic' cripples your ability to drive retail sales or even understand them.
'Traffic' measures the total number of prospects visiting a store, including buyers as well as non-buyers. Whenever we ask retailers about their traffic – was it up or down? – they will always have an answer. The problem is that more often than not, they mean 'transaction count' not 'prospect (traffic) count'. The difference is not merely semantics...it is the night and day difference between being able to improve sales or not or even understand your business.
Transaction count is not the same as traffic count. The following chart shows a sample of stores from a housewares retailer that illustrates how the difference between the two can be dramatic.
Housewares Retailer - 13-Store Example:
Look across the 13 stores. Average daily transaction counts were 310, and average daily traffic counts were 650. Traffic counts were a little more than twice the transaction counts.
Remember, the difference between traffic count and transaction count represents potential buyers that entered the store but didn’t buy. A traffic count will include people who are not true prospects (e.g., family members shopping together in a group), but many of the individuals really are potential buyers, and collectively they represent the lost sales opportunity.
Not only is there a big difference between transaction counts and traffic counts generally, but these differences vary by store.
Compare San Diego and Las Vegas: If you used transaction counts as your guide, you would erroneously conclude that these two stores were substantially similar. But, San Diego store was getting 30% more prospect traffic than Las Vegas.
Conclusion: If you’re scheduling staff based on transaction counts, you’ll be way off the mark. If you apply some general 'load' factor to transaction counts to estimate store traffic, you’ll be wrong because the stores are different.
Our team has had many discussions with retailers on this point. They argue that a transaction count represents the number of actual 'buyers' the store had and, therefore, it’s a legitimate and meaningful 'customer count'. That is true. But it all falls apart when they use that as a proxy for 'traffic'.
The fundamental flaw in this calculation is that it accounts only for buyers. What about the people who came into the store, wandered around, didn’t get served, and left? Aren’t you even mildly interested in how many potential sales were lost?
Listen to some quarterly earnings calls. Very interesting! Retailer after retailer are asked by Wall Street analysts whether their comp-sales performance was driven by average ticket or traffic. Very often they respond by saying "traffic was down". The interesting part is that often those retailers are not actually counting traffic.
Without the benefit of traffic and conversion data to put results in context, retailers are left with having to make do with what they do have: transaction data. You may say that transactions are a proxy for traffic, but that thinking will really lead you astray.
Retailer: "Comparable store transactions, which we use as a proxy for traffic, represented 3.6% of the comparable store sales growth…”
Interviewer: “Did sales increase because there were actually more customers visiting the stores, or was it that more of the existing visitors made a purchase?”
Consider this: Transactions are a function of traffic multiplied by customer conversion rate. It may very well be that 3.6% more people visited the stores and this increase generated the increase in sales. But how would you feel if you knew that traffic was flat? or down?
Without traffic and customer conversion data, there’s no way to know for certain what drove the comp-sales growth. Relying on transactions as a proxy for traffic can lead you to serious misconceptions about your business.
In this example, management was very interested in the comparative performance of two stores in particular and wanted to understand why there was such a difference between them. Our team analyzed the data … to surprising and important results!
The example above was a game changing insight!
Imagine if these were your stores. If you had relied upon transactions and sales data to guide your decisions, your would have staffed up at the Vancouver store for what you believed was higher traffic. And, you would have invested in advertising to try to drive more traffic into Toronto store.
Both of those decisions would have been wrong.
The Vancouver store was already doing a great job at converting the traffic they were getting; increasing staff expense wouldn't have been the answer. However, it made a lot of sense to brush up on cross-selling and up-selling to get the average sale values up.It all seems so obvious when you have the right data!
To improve your sales, you need to understand what lever to pull. Traffic and customer conversion help you do that.