What Is a KPI in a Retail Store?

A KPI, or Key Performance Indicator, is a metric used to measure performance. Retail stores use various KPIs to measure their activities. There is no particular set of KPIs that every retail store must use. Retail stores need to pick the right KPIs based on the outcome they want to achieve or their strategic goals. For example, one retail store might want to manage their inventory better, so they would use KPIs like inventory to sales ratios or inventory integrity. On the other hand, another store might want to enhance the customer experience, so they would choose KPIs like customer satisfaction and customer retention.

Retail stores need to choose the right KPIs when measuring their business processes or goals. Each KPI must have a specific purpose, must be measurable quantitatively or qualitatively, must have a realistic goal, must be relevant to the strategic direction of the store and should be measured within a specific time-frame. An example of this is increasing monthly sales volume by 10 percent by the end of the month. The retail store will then measure their monthly sales volume and compare the increase to the target of 10 percent.

Each business unit has its own set of KPIs. For example, the marketing team in a retail store uses marketing KPIs like customer acquisition, while the HR team uses HR KPIs like staff turnover. KPIs can also fall into multiple sub-categories. Quantitative KPIs can be measured with a numerical value while qualitative KPIs can't. Input KPIs measure the inputs consumed in a certain business process and output KPIs measure the results of the business process. Leading KPIs predict the result of a business process and lagging KPIs present the outcome of the business process.

Ultimately retail stores want to increase their sales and make more money. While there are a vast number of KPIs related to sales, there are some basic ones that most retails stores use. Gross profit, sales and cost of goods sold are the three simplest ones. They directly measure the profits of the store. Average purchase value and sales per segment are also widely used. Sales per square foot help store managers determine the best way to place goods in the store to increase sales while conversion rates identify how many purchases are actually made for every customer who walks into the store. There are KPIs to measure the efficiency of the sales team, such as sales per hour and salary to sales ratio. Inventory KPIs such as inventory to sales ratio or out-of-stock items are important in improving inventory management.

Ultimately, the usage of KPIs should lead to changes that improve the performance and efficiency of the store. There is no point putting so much effort identifying KPIs and measuring them if the data is not going to be put to good use. If there is a pattern arising in out-of-stock items, such as one particular item being out-of-stock with a higher than expected frequency, then it is time to increase the frequency or amount by which the item is restocked.