How to Measure the Effectiveness of Visual Merchandising Strategies
Visual Merchandising (VM) is a tool and practice for serving the customer, to make shopping inspiring and to increase sales. But, as with any business, every action in-store should be able to be measured in order to follow up and evaluate the performance of VM and its influence on sales. VM should be seen as an investment, as an action built into the overall marketing plan, and not be considered as an expense.
There are several ways to measure the effectiveness of VM. This blog covers a couple of ways and show how concentrating on VM and creating a great customer experience is able to increase turnover.
One of the easiest ways to measure the effectiveness of VM, is to simply calculate the basket quantity and the basket size. Why? Because add-on sales are the best way to increase your turnover. It is easier to sell to a person that is already in the store than trying to get more people into the store. In this case, VM can truly act as a silent sales person. The basket size signifies the value of the shopping basket: Sales divided by number of customers.
Naturally there should always be targets set, and follow ups to see if the window displays are performing as they should, and analysis to find out what is working and what is not.
Let’s take an example. How much do $10 add-on sales for four customers per day increase the turnover in one year?
We have a store that is open from Monday until Saturday, 4.5 weeks per month. The target is to make 4 x $10 add-on sales per day. Items are all ready for add-on sales, e.g. scarves styled on mannequins in store. VMs do their display and styling in a way that helps staff to suggest the add-on sales items to the customer (e.g. to complete the look and tie everything together). The add-on sales target is also taken into account in window displays, in-store campaigns and in social media marketing campaigns.
Per day: $10 x 4 = $40
Per week: $40 x 6 = $240
Per month: $240 x 4.5 = $1,080
Per year: $1,080 x 12 = $12,960
Calculating per day, week, month and year, you will come to the conclusion that the turnover can be increased by almost $13,000! Therefore, imagine the add-on sales target is already taken into account when planning for the upcoming seasons. If buying and planning teams cooperate with the marketing team in advance and the right items are in store at the right time, VMs will be able to display those items, which will have significant impacts on sales.
Translating add-on sales targets for in-store teams
Imagine a company that has $200,000 turnover per year. They want to increase sales by 10% ($20,000). Now the question is how to make a sales target for add-on sales more reachable and easier to grasp for retail employees? How can a VM do his or her work in a way that is aiming for the target while planning and creating the displays?
What I did while working as a store manager, is that I simply divided the big amount into monthly, weekly, daily targets and even divided it into product levels. This basically signifies using the basket size option, only in a reversed way.
Let’s assume the store is open six days a week for 4.5 weeks per month. In order to reach the target of $20,000 the company needs to have additional sales:
$20,000 /12 ≈ $1,667 per month
$1,667 /4.5 ≈ $370 per week
$370 /6 ≈ $62 per day
Breaking it down, we know that add-on sales worth $62 per day have to be reached. This could be divided into $10 per 6 customers, or one product of that price per customer, or two worth $31 items etc. This target also provides a monetary target for Visual Merchandisers whilst planning displays and product combinations.
Another tool to measure in-store merchandising, service and store performance, is to calculate the hit rate: the percentage of how many store visitors actually bought something. It is easily calculated by the number of sales divided by the number of visitors.
How to use basket size and hit rate to measure the possible effects of Visual Merchandising in creating more sales?
Imagine a store owner, that has a shop with a yearly turnover of $200,000 hit rate is 20% and the basket size is $25. Furthermore, there are 40,000 visitors and 8000 sales per year. When people are passing the store, we can estimate that 10% of passersby actually enter the store. In this example we know that as a result 400,000 potential customers pass by the store annually. If the store owner decides to increase the passersby number by 1%, and hit rate and basket size would stay the same, the shop could increase sales by 10%.
11% x 400,000 passersby = 44,000 potential customers
20% hit rate x 44,000 = . 8,800 paying customers
$25 X 8,800 = $220,000 . (+10% increase in sales)
To reach the target of increasing the hit rate up to 20% with 11 % of passersby entering the store, the store owner decides to invest in great customer service and customer experience, having great items ready for campaigns, themes, sets and styling in order and seasonal items at the right time at the right place. Just by increasing the hit rate by 5%, its effect on increasing sales is 25%.
The third step is to include a raise in basket size. The right styling of add-on sales and specific marketing strategies are helpful to inspire the customer in-store. Creative window displays even draw more people into the store. Increasing the basket size by e.g. $10 would lead to a turnover growth by 40% compared to the original numbers.
So what if a store owner truly understands the value of VM, great customer service and decides to increase hit rate by 5%, basket size by $10 and get 1% additional passersby into your store? In Figure 2 you can see that the result would be a 92.5% raise in sales. Sounds promising, right?
11% x 400,000 passersby = 44,000 potential customers
25% hit rate x 44,000 = . 11,000 paying customers
$35 X 8,800 = $385,000 (+92.5% in sales)
Setting targets to increase hit rate, turning passersby in actual customers and enhance basket size should all be accompanied by an omni-channel customer experience, great VM and exceptional marketing strategies. If you successfully implement all VM strategies, you have the right items at the right times in-store and your omni-channel marketing works out, you will be able to increase your turnover by 92.5%! Well, theoretically. But you can use this formula and the same rationale in a real world scenario.
Strategically planned seasonal add-on items in-store, a tidy store front and well laid out window displays are hereby all factors that VMs have to keep in mind. This way VM can significantly help to increase turnover.