Retail Performance

Retail technology first came to the attention of investors just as the technology bubble was bursting on Wall Street.

The technology has had the greatest impact on five key measures:

1. Comparable store sales
2. Operating margin
3. Square footage growth
4. Inventory turns
5. Return on invested capital (ROIC)

1. Comparable store sales
Comparable store sales growth is a good barometer of demand for a retailer’s product because it measures sales at stores that have been open for at least a year. Retailers with the ability to maintain comparable store sales growth will be able to better leverage fixed costs and improve operating margin. Several technologies can assist retailers in growing comparable store sales by maximizing revenue based on the demand.

2. Operating margin
Operating margin shows how well a retailer can improve profitability by increasing gross margin and leveraging expenses. Improving operating margins can greatly enhance earnings per share growth, which is a primary focus on Wall Street. Technology can help retailers improve margins by increasing the probability that their products are sold at full price and by achieving better sell-through.

3.  Square footage growth
Square footage growth drives total sales and is useful in judging the overall growth prospects of a business. Technology can aid retailers in designing a growth plan and finding the optimal location for a store given the demographics of a particular area.

4.  Inventory turns
Inventory turns measure how effectively a retailer can move product through the supply chain and into the customer’s basket. High turnover of inventory will not only drive sales but will also lower the total cost of carrying inventory. Exceptional inventory management can be a significant driver of profitability.

5.  Return on invested capital (ROIC)
ROIC represents the profit that a company can generate for each dollar invested and is calculated by dividing a company’s net operating profit after tax by its invested capital. Technology can help in two ways. First, technology that improves operating income will increase the numerator of the equation. Second, technology that manages invested capital will help the denominator of the equation.

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