When brands need to reshape their portfolio and close stores, they face the challenge of improving Like-4-Like performance at the remaining points of sale. The two product strategies introduced here help improve the top and bottom line of your P&L.
Improving like-4-like performance often focuses on mechanics and triggers that can be influenced by sales staff and a retail organisation. Surprisingly, it often excludes an honest evaluation of the assortment’s performance. This article shows how improving hit rate and using best seller potential can push sell-through, create incremental sales potential, reduce mark-downs and improve the gross margin.
1. Identify Bestsellers by ‘Average Rate of Sale’
Some companies call it ‘Average Rate of Sale’ (ARoS) others use ‘Style or Productivity’ (SP), ‘Article Productivity’ (AP) or ‘Option Productivity’ (OP). Whatever name is used – it measures how many pieces of one specific product have been sold on average per POS in which the product was stocked. In footwear retail, this might be the number of this scarlet sneaker with white and silver details and a white chunky sole sold over a specified period of time.
Time-wise, you can measure the ARoS (depending on stock turn) in any imaginable dimension (e.g. daily, weekly, monthly, quarterly, seasonally, annually). Whatever time frame you decide to analyse, you need to make sure not to include marked down items. That is because your goal is always to sell items full price and hence benefit from a comfortable gross margin.
Most companies identify their best selling products by the means of a bestseller list that ranks products according to the total number of pieces sold per option across all POS. This is misleading and limits the financial effect of bestseller management as it compares apples with oranges.
A product that you stocked in 100 POS will naturally rank higher on your bestseller list than a second product that was available only in 10 POS. This is the case even if the sell-through rate of the second product is much higher than that of the first.
2. Make Most of Your Bestseller Potential
The average rate of sale (ARoS) combined with the information of how many POS stocket the item helps you identify your true bestsellers early on.
Making good use of your bestseller potential has two important dimensions:
- In-season replenishment of your best selling seasonal items in all stores that stock the product
- Extending distribution of your best selling items to ALL Stores, which is the easiest and most impactful way to cash in on your bestsellers
Benefits for future collections/assortments:
- Extending the originally planned life cycle of your bestsellers (carry-over products) by offering them for another season,
- Using the specific success factors of a bestselling product and adding slight alterations (e.g. keeping the base styling of a certain sneaker but changing colours, material or styling details of laces, tongue, shoe tips, caps or heels)
However, precondition for utilising the bestseller potential for future collections is to truly understand the success factor of a best selling product. The bad news is that there are still product developers, designers and brand mangers out there who are not really able to answer the question “What makes this product a best seller?”. Coming up with a very good answer to that question is crucial to improve the hit rate of future collections.
3. Hit Rate: A Key KPI to Measure the Success of Product Categories
The Hit Rate tells you how many styles or articles of your entire collection are best or at least good sellers and what share of your total assortment they account for. The benchmark varies by genre, category and life cycle. In the fashion industry, a best-selling NOS (never-out-of-stock) product with a life cycle of 6 months should sell on average at least 26 times per POS (that stocks the product). This means the product is sold on average once per week per POS. A seasonal item with a life cycle of 3 months can already be a bestseller when it sells more than 10 times per POS. This means that each brand has to define its own benchmark. In the example below we have chosen the following definition:
- Best sellers: sell more than 25 times per POS
- Good sellers: sell more than 10 and up to 25 times per POS
- Ok sellers: sell more than 5 and up to 10 times per POS
This graphic shows two situations we often encounter when analysing our assortment potential:
Product Group A shows an excellent hit rate:
62% of all styles sell more than 5 times per POS, 36% of all styles sell more than 10 times per POS, 12% sell even more than 25 times! Thus, additional sales potential does not come from improving hit rate but from a better best seller management: Consequently placing all styles that sell more than 5 times per POS in all stores generates an incremental sales potential of about 8%!
Product Group B is extremely unproductive:
Only 5% of all styles sells more than 5 times per POS and just 1 out of 201 styles sells more often than 10 times. The problem here is, that there is almost no best seller potential because this product group has just 1! Improving performance in this product group means improving hit rate and reducing assortment width! 71% of all styles sell max. once per store. This blocks valuable retail space, causes handling and logistic cost, wastes product development efforts and management attention while diluting margins. It even raises the question whether the entire product group should be discontinued.
Using ARoS as a key performance indicator for assessing assortment productivity offers an objective and simple way to identify appropriate product strategies for improving the assortment. It also helps identify focus areas by category and adjust your product development capacities accordingly.
About the Author:
Heike Blank has worked for big organizations such as VF Europe and s.Oliver but also for niche brands such as Ecko Unltd. and Zoo York in top executive positions. Her extensive experience with opening and managing own retail, partner stores, concessions and shop-in-shops in 23 countries in Europe, the Middle East and Asia make her an expert in expansion. Connect with her on LinkedIn and read more from her here.