Sales English Plain Talk (Part 2): How Retailer Sales Are Made

《Sales English Plain Talk》 is a series of articles written by Mobius for the internal use of SMI Consulting in the early years. When our editor recently revisited them, they found even more meaning and fun beyond sales and English, so they have organized and shared them with you all.

Chapter 2 How Retailer Sales Are Made

Retailers have their own jargon.

Sales made by retailers have a specific term: POS, Point of Sales. Literally translated as "point of sale," it has come to describe the sales data of retail outlets, commonly called POS Data. The cashier register at the checkout line is also called a POS System, but this actually refers more to the underlying software application and backend database.

● Sales Come from Traffic and Ticket Size

Retailers believe sales come from traffic and ticket size. More people coming, and each buying more, leads to achieving the POS.

Traffic is common in retail management; for example, a product or category that sells well is called a "traffic builder." Another term is "customer count," which is straightforward and easy to understand, mainly referring to the number of people.

Nowadays, US retailers also use "footfall" to refer to foot traffic. It appears in English materials, but few people in China use such a fancy word.

Footfall refers more to pedestrians; for example, foreigners might say a retail store has "high footfall," meaning many people walk in and browse. If many people drive in, they say "car boomer," like Sam's Club or Metro, which are mostly car boomers, while Walmart Supercenter might be high footfall.

Another "foot" word, "footprint," is also used, referring to the "walk flow" in the store – the path shoppers naturally take due to store layout design. Good walk flow planning can guide customers to shop smoothly, avoid dead corners, increase dwell time, and thus increase total purchase amount (ticket/basket).

This is a major concern for retailers, an important part of retail techniques, and a hot area in shopper studies.

For retailers, good walk flow design can increase sales per square meter (average efficiency or store productivity). For manufacturers, studying walk flow can improve the effectiveness of display and promotion.

Where does traffic data come from? There are two methods:

1. Send people to count on-site.

Whether at the entry or exit, count how many people come and go, sample at typical times, and you can estimate traffic.

Note that this "traffic" has limitations: first, not all visitors buy; second, it doesn't reflect household-based shopping behavior, as it counts individuals, while actual shopping is often done by households (if you live alone, you are the smallest household unit).

2. Count the number of receipts.

You can easily determine how many transactions occurred today by counting receipts, which usually equals the number of shopping trips and is an effective "traffic" measure. Note that the ratio of this traffic to the earlier visitor count does not represent a "conversion rate" because the counting bases differ: visitor count counts individuals (# of shoppers), while traffic counts households (# of households).

For example: Today, Walmart Honghu store had a total visitor count of 50,000 people and a total number of transactions (# of Tickets) of 15,000. Some visitors may not have bought anything, which is unfortunate and something Walmart should reflect on, but the exact ratio cannot be determined from the data. The 15,000 transactions occurred at the household level, as it's hard to imagine couples shopping together and paying separately (unless they are about to become two new households, which is a rare event). Each household may average 1.8 or 2.1 people, varying by store.

Now, back to ticket size.

Ticket size is the purchase amount per transaction per shopper. This amount can be seen on the receipt, which is why it's called "ticket" – because the data comes from that "ticket." In retail stores, you see shopping baskets (often placed in trolleys or shopping carts). Each receipt is a summary of the basket, so ticket size can also be called "basket size," and analysis of ticket size is naturally called "basket analysis," though few call it "ticket analysis."

Many retailers pursue basket size as a key performance indicator, but looking at basket size in isolation is biased. Besides ticket, there are other indicators like total households in the surrounding trade area, penetration (households visiting the store), shopping frequency, and share of total spending (also called loyalty, as shoppers show loyalty by spending money). These need to be considered together for meaningful insights.

● Reading More from Retailer Receipts

Let's look at a retailer's receipt and see what we can read. First, of course, is the ticket size, which is the amount due on the receipt. Note that this is not "Account Receivable" (AR) – that term is too grand; here it's just amount or sum.

Drilling down, you'll find the number of items is also useful data. In this case of a supermarket in Longquan, the basket size was 39.3 yuan, with 6 items, so the average amount per item is 6.5 yuan, which is the item size or unit size. For some warehouse club stores, the unit size averages over 30 yuan; if the unit price is too low, they bundle two or three together, called a bundle pack.

With ticket size, we also derive margin per ticket.

Margin is gross profit, but whether it refers to margin amount or margin rate is often ambiguous, just like the Chinese term "毛利." So we often add a qualifier, such as margin dollar or margin rate. If the ticket's margin rate is high, the shopper behind it is someone retailers love.

If you look at your neighbor Grandma Zhang's receipt, you'll find it full of fresh produce and promotional items from direct mail flyers. The margin rate on that ticket might be pitiful. If there are too many Grandma Zhangs in a store, the store might lose money and close.

If a retailer tells you your product sells poorly or has low profit, you can use basket analysis to prove that tickets containing your product have an average margin higher than the store average, giving you some leverage. Can we read other things? There are many, but that would require another book on basket research.

Read the Sales English Plain Talk series, and you'll find more fun than just sales and English!

Source: 为之

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