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Case Study: Effect of Traffic on Sales and Conversion Rates of Retail Stores « Case Study « Industry Resources « Downloads
|Date posted||May 22, 2013|
|Tags||retail operations, store labor management, traffic uncertainty, store performance, traffic variability|
Attracting shoppers to stores and converting the incoming traffic into sales profitably are vital for the financial
health of retailers. In this paper, we use proprietary data pertaining to an apparel retailer to study the
relationship between store traffic, labor, and sales performance. We decompose sales volume into conversion
rate (defined as the ratio of number of transactions to traffic) and basket value (defined as the ratio of sales
volume to number of transactions) and analyze the impact of traffic on sales and its components. We find that
store sales volume exhibits diminishing returns to scale with respect to traffic, and labor moderates the impact
of traffic on sales. For example, we find that for values of traffic and labor corresponding to the mean, increasing
average traffic per hour by one unit increases average sales volume per hour by $9.97. Further, we find that
the marginal returns to traffic increases from $10.00 to $11.32 when labor increases by one standard deviation.
In addition, we find that the conversion rate declines with increasing traffic and a lower conversion rate is
associated with a decrease in future traffic growth. Our study underscores the importance of in-store operations
in driving the financial performance of retailers.