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09/27/2011

Baseball, as a metaphor or analogy, can teach us about many things. �Hitting a home run� could mean making a big sale in the business world. �Reach for the fences� inspires people to achieve their dreams. A �ballpark� figure allows for a broad area of approximation. But can baseball really be used as an analogy for the retail industry?

Industry thought leader Mark Ryski shares new and innovative techniques for extracting powerful insights from basic store traffic and customer conversion data, delivering a game-changing look at this crucial retail information.

The Trouble with Traffic � What Retailers Can Learn from Baseball

By Mark Ryski

When a retailer is asked if traffic is up or down, there�s a very good chance that the answer provided actually refers to the store�s �transaction count� or what is sometimes ambiguously referred to as �customer count.� No one seems to probe on this, so by default transaction count has become an acceptable proxy for store traffic count. But there�s another rub: transaction count is not the same as traffic count.

Transaction Counts vs. Traffic Counts � Hits vs. At-Bats

To say that transaction count represents a reliable proxy for store traffic is analogous to saying that hits are a reliable proxy for at-bats in baseball. Yes, the two stats are related, but they are not proxies � not even close.

If baseball statisticians only tracked hits, without considering at-bats and batting average, how much less would we understand about the greatness of players like Ty Cobb or Babe Ruth? A lot less. The same is true for retailers. Transaction counts (hits) may be up, but knowing if it was a result of an increase in store traffic (at-bats), or that the retailer was more effective at converting the store traffic is an important distinction. This is not a subtle point. Here�s why.

Why Store Traffic Matters

Store traffic is a measure of all the people who visit the store, including buyers and non-buyers. Traffic is a leading indicator that tells us something about a chain�s sales opportunity � more traffic, more opportunity. If traffic is trending up, this is clearly a positive sign. It suggests that the brand is in favor and opportunities abound. The converse is also true. If store traffic is waning, this is disconcerting and it could indicate that the banner is falling out of favor. The number of sales opportunities is decreasing.

The problem with relying on transaction counts as a proxy for traffic is that they could be going up regardless of whether actual store traffic is going up or down. To understand this apparent paradox, you need to consider the retailers� batting average.

Conversion Rate � Retail Batting Average

As mentioned, store traffic count defines the sales opportunity and is analogous to at-bats. Transaction count represents buyers only and is analogous to hits. Therefore a retailer�s batting average, or conversion rate, is calculated by dividing the transaction count by the store traffic count � just like in calculating batting average.

Store traffic and conversion rates tend to be inversely related. When store traffic falls, associates are able to deliver a higher level of service, check-out lines are shorter, and generally it�s easier to buy. The transaction count often goes up, despite the fact that there is actually less traffic in the store. In this case store traffic didn�t increase, but if the retailer only has transaction counts to rely upon, then he reports �traffic is up.� But it�s not. And yet all parties � the retailers and the inquisitive analysts � seem to tolerate the ambiguity.

Don�t Ask, Don�t Tell

One Wall Streeter told me that you can�t ask a retailer about traffic counts if they don�t track traffic in their stores. True, but you also can�t have two definitions for this basic metric either. If you want to ask about transaction counts then ask for transaction counts, and if you want to ask about store traffic, then ask for store traffic. This shouldn�t be open to interpretation.

There is a simple way to inject clarity into what has become a convoluted question. Instead of asking retailers if it was �ticket or traffic� that drove results, analysts should ask if it was �ticket, traffic or conversion.� While most retailers don�t track store traffic and so won�t be able to answer, at least it will be clear that they don�t and you will know they mean transaction count � which on its own tells us little about what drove results.

As for the retailers who do track store traffic and measure conversion rates, you will have a much deeper insight into what actually drove sales results. Maybe retailers, and Wall Street, need to take a page out of the baseball playbook.

Mark Ryski is the founder of HeadCount Corporation and author of Conversion: The Last Great Retail Metric and When Retail Customers Count.

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