Retail Efficiency

Measurement Matrix
Sales Per Square Feet per Day
Sales per Linear Feet
Average Basket Size
Average Bill Value / Average Ticket value
Sell-Through
Sell-in
Walk-in
Conversion
Sell-in & Sell-Through Rate
• Sell Through Rate (aka Movement):
• A retailer’s measure of how fast a product sells in their store, based on the amount
of inventory received from a vendor versus how much of it sells during a given
period of time (generally a month).
• This is useful for the retailer when comparing different products with each other,
and also the movement of a single product one month versus the next.
• By monitoring sell-through rates, retailers are better equipped to keep their shelves
fresh and engaging for the customer. Compare this with Turn Rate, which is a longer
term measurement.
• Sell-through” and “sell-in” are terms used in a specific type of sales channel. In
these transactions, a retailer buys and stocks products from a manufacturer or
distributor. The retailer reserves the right to return unsold units to the supplier for a
refund or credit.
Sell-in & Sell-Through Rate…
• Terms Revolve Around Inventory:
• In a sell-in transaction, a retailer agrees to buy goods from a manufacturer or
distributor at a discounted price. For the manufacturer or distributor, a sell-
in occurs when the retailer agrees to buy the goods. The term is based on
the concept that the supplier is selling the goods in the retailer’s store. The
retailer then offers the goods for sale. A sell-through occurs when a
customer buys the product from the retailer. The term is based on the notion
that the supplier is successfully selling the product through to the customer.
Sell-in & Sell-Through Rate…
• Payments Complete the Transactions
• Under the terms of a sell-in agreement, the manufacturer or distributor
invoices the retailer when it ships the goods to the retailer. The retailer pays
the invoice according to the terms of the agreement, usually net 30 days.
When a customer makes a payment at sell-through, the retailer keeps the
entire payment. The supplier receives no money but no longer incurs the risk
of a return of that unit.
Sell-in & Sell-Through Rate…
• Books Offer a Textbook Example
• Books are a classic example of a product sold using a sell-in agreement. A
book publisher solicits orders for its many different titles from bookstores and
other retailers, offering substantial discounts off the retail price. The publisher
achieves a sell-in when a retailer places an order for titles it wants to stock
and pays the publisher’s invoice. The publisher's sell-through occurs when the
retailer's customer buys a book. If specific books do not sell, a retailer returns
them to the publisher, which issues a check or credit to reimburse the retailer
for the returned units. The publisher returns the books to its inventory and
ships them to another retailer to achieve a sell-through.
Sell-in & Sell-Through Rate…
• Sell-ins Offer Advantages
• Easy to calculate. The most common method for calculating is to divide the total
number of units sold by the initial inventory for a certain time period – say, a week or a
month. This number will give you the sell-through rate -- and ideally pull-through
revenue that will make your business a success. Sell through rate is commonly
represented as a percentage.
• A sell-in agreement is appropriate for certain types of products, including books,
software and video games, that are unique but compete with many similar types of
goods for customer interest. A sell-in agreement’s return policy helps manufacturers
and suppliers achieve broader distribution of their one-of-a-kind goods. It offers an
incentive to retailers to take on a wider range of inventory because they can return units
that fail to sell-through. A sell-in agreement is attractive to retailers because they can
offer their customers a wider range of goods without incurring permanent inventory
costs or taking on greater sales risks.
How to Calculate Sell-Through Rate 
• So, in your store, if you bought 100 chairs and after 30 days had sold 20 chairs
(meaning you had 80 chairs left in inventory) then your sell-through rate would
be 20 percent. Using your beginning of month (BOM) inventory, you divide your
sales by that BOM. It is calculated this way:
• Sell through = Sales / Stock on Hand (BOM) x 100 = in example (20 /100) x 100 = 20 percent
• Sell through is a healthy way to assess if your investment is returning well. For
example, a sell-through rate of 5 percent might mean you either have too many
on hand (so you are overbought) or priced too high. In comparison, a sell-through
rate of 80 percent might mean you have too little inventory (under bought) or
priced too low. Truly the sell-through rate's analysis is based on what you want
from the merchandise. 
• For example, when the retailer made a mistake in buy (meaning bought a shoe no one
wanted). The retailer wanted a high sell-through rate to get rid of it. Normally if it had
too high a sell-through rate, the retailer realized that they needed to raise their stocking
levels. But in this case, the higher the number, the better. The retailer was simply trying
to get rid of it. 
• The reality is that sell-through rate is a more important metric to a vendor than a retailer.
A vendor does not want to take on the cost of manufacturing until it absolutely has too.
Tracking sell-through tells the vendor how many months on hand it has of a certain SKU.
• A buyer may keep a scorecard by a vendor for his store so that when they sat down with
them, they could show them how their sell-through compared to other vendors in the
store. Often times, this technique helps buyer get better pricing or markdown dollars or
even free freight on their orders in order to get that vendor's sell-through rate to match
the others.
Inventory Turnover vs. Sell-Through 
• In contrast to inventory turnover, sell-through is relating what percentage of your inventory you
are moving through in a month. Inventory turnover, while relatable for a month, is looking at a
year period of time. One month is too short of a period to use turnover, so sell-through is a better
analysis. Many retailers have tried to connect the two numbers (in other words trying to see the
correlation between inventory turnover and sell through) but it is a mind-numbing waste of time.
• Manufacturers often create promotions or special advertising in an effort to increase the sell-
through rate of their products at the retail level.
• The longer an item stays on your shelves the more money it is costing you. While it may not seem
like it is costing you money, sell through helps prove it is. Always remember, the space that
products are occupying could be given to a product with a strong sell-through rate.
• And dead stock ties your open to buy dollars as well. Meaning, you cannot order fresher, better
products until you sell through what you have now. Monitor your sell-through rates and keep your
store fresh and engaging for the customer to improve your bottom line and the customer
experience. 
Other Terminologies
• Store Conversion Rate
• The amount of actual sales from the amount of customer traffic that have visited the store.
• Sales Conversion Rate
• Measure of the effectiveness of your sales team at converting leads into new customers.
• Footfall
• Footfall is the measurement of the number of people entering the business premises. By counting how many people enter your
retail space, other important key metrics can be calculated, metrics that are important for survival in the retail industry, things
such as conversion rates and ATV’s.
• ATS
• ATS stands for average transaction size, which is the average amount spent on a single transaction or purchase. It’s calculated
by dividing the value of sales during a given time by the number of transactions in that same period. This data is invaluable in
measuring sales growth over time.
• Conversion Rates
• Retail conversion rates measure the percentage of visitors that make a purchase. For example, if 100 shoppers visit a store but
only 20 make a purchase, the conversion rate is 20 percent. To accurately measure retail conversion, you must count the people
who enter a store but also take into consideration partners, children, and visitors, such as sales representatives or maintenance
staff, who do not represent potential shoppers.
• Showrooming
• Showrooming is when a customer visits a store to see a product in the flesh but then
goes on to purchase it from an online retailer. This happens because many people
prefer seeing first-hand what they are going to buy, but things are often available
cheaper from online vendors. Because of this, their local retailer essentially becomes a
showroom for them.
• Webrooming
• The opposite of showrooming, webrooming refers to the act of looking at a product
online before venturing out to a physical store and purchasing it from there. Customers
sometimes choose to do this as it allows them to see goods in the flesh before deciding
to make the purchase.
Category Management
 Definition
Developed in the early 1990s by The Partnering Group (TPG), a consulting firm…

Category Management is a distributor/supplier process of

managing categories as strategic business units, producing
enhanced business results by focusing on delivering consumer
value.

There are three key concepts in the above definition:

• First, both distributors (retailers and wholesalers) and their suppliers (manufacturers and
brokers) focus on delivering the best possible value to the consumers.
• Second, it is a collaborative process that produces enhanced business results for both
partners.
• Third, this process requires managing categories as Strategic Business Units (S.B.U.).
• The establishment of a group of products as a category, which essentially have similar demand
patterns, are reasonable substitutes for one another and can be viewed as a sensible strategic
business unit on which to base a marketing plan.
• A category is an assortment of items that a consumer finds as reasonable substitutes for each
other. Goods are categorized on the basis of similarities in consumer tastes, preferences, liking
and disliking such as Junk food, Razors, burgers, baked confectionary, sweets, etc. The goods are
priced, promoted and targeted to same customer base (target market). For instance Vishal Mega
Mart divide its apparel on the basis of Gents’ Apparel, Ladies’ Apparel and Kids Apparel. 
• Two retailers selling similar merchandise may have different definitions and thus different
categories of the same product range. For instance, one retailer divides its ‘apparel’ under gents,
ladies, kids and infants category, while another (for say) may define categories in terms of brands
like UCB be one category and Levi’s be the other. Why it is so? Because a ‘UCB’ customer will buy
only UCB not the Levi’s.
• Category management is a philosophy, a process and an organizational concept.
Category management as a philosophy
• Fundamental to the adoption of a category management philosophy
is the way in which suppliers are viewed. Whether they are termed
partners or allies, the key to the philosophy is supplier integration.
Traditional lines defining functions that a supplier performs are
broken down as competencies are shared as well as information. If a
supplier is able to perform an aspect of product management more
efficiently (for example product development), then it should
contribute that part of the process. If a retailer is more efficient, then
it should perform the function. The resulting efficiency gains lead to a
lower cost product, and the cost savings can be negotiated between
the parties.
Category champions
• The suppliers who take on a major role in the category management process are
often referred to as category champions or category captains.
• They are expected to be able to accept the presence of other suppliers and their
contribution to the overall success of the category from the consumer’s (and
retailer’s) point of view.
• They have a major interest in the category and its performance as a whole because
their own success is dependent upon it.
• For example, many category champions produce assortment plans or planograms for
retailers that include all products within a category, whether they are their own,
another supplier’s brand or the retailer’s own-branded products.
• A supplier that is in a very dominant position within a category may even manage the
inventory for a retailer (Supplier-managed inventory).
 THE CATEGORY
MANAGEMENT
PROCESS
Category management is generally
viewed as a step-by-step planning
and implementation process that
helps retailers and suppliers to
achieve both performance-based
objectives and longer term strategic
aims.
CATEGORY MANAGEMENT AS AN
ORGANISATIONAL CONCEPT
• From the point of view of the category definition, category management requires an
understanding of how customers shop; this has traditionally been the concern of
marketers rather than buyers within a retail business.
• Category management, therefore, brings a much stronger marketing orientation to the
product management process. Category management has the effect of reducing the role
of the buyer and augmenting the role of the merchandiser, but essentially a category
management role is a cross- functional one.
• The intersection of buying and merchandising and marketing is the heart of retail brand
management, and its focus is category management’.
• The implementation of category management, like the rest of an ECR approach to product
management, relies on collaborative and co-operative supply partnerships. Category
management requires a focus team organisation that spans both supplier’s and retailer’s
organisational boundaries.
Benefits
•Reduce excess inventory
•Improve return on investment (ROI)
•Improve comparable store sales
•Enhance knowledge of the consumer
•Improve the speed to market on new products
•Reduce out-of-stocks
•Maximize shelf efficiencies
•Increase turns
•Identify problem brands
•Identify procurement opportunities
•Improve return on marketing funds invested for
suppliers
•Maximize vendor relationships
The benefits from Category Management vary across
retail formats, category partners, and geographies
depending upon how well it is being practiced.
On average ,in the United States , the following results
have been achieved:
• Sales increases of about 7% for the total category,
with about 5% being achieved for the manufacturer
selected as the category partner.
• Margin improvement of about 5% for the retailer, with
reduced cost of items and retail inventories;
sometimes reduced space allocation as well.
• Margin improvement for the manufacturers due to
lower cost of sales and trade promotion costs. This
number has varied considerably depending upon how
differentiated the category is, and how well the
manufacturers have developed their internal
capabilities.
DRAWBACKS OF CATEGORY
MANAGEMENT
• Requires reorganisation
• Skill Shortages
• Lack of variety offered to customers.
• Selections may start to appear boring and over-managed.
• Threat to smaller suppliers.
• Major suppliers managing a category for their own purposes, may
drive the shoppers away.
 Post-Mid Term Assignment
• Brief 1
• Application of Retail Merchandise Mathematics for a Dummy Store
using spreadsheet

• Brief 2
• Development of a reference guide for Retail Merchandise
Mathematics for front end staff for a hypothetical store with
illustrative examples and graphics.

Guideline for Evaluation: The students should be evaluated based on their understanding and application of the various
Inventory Management concepts in real life retail buying and planning scenarios. The main focus will be to maintain the desired
profitability for the retailer.
 Thank You
vikas.kumar@nift.ac.in