Chasing ROI
As stores compete for customers and technology brings improved tools,
retailers and their suppliers seek new ways to measure the impact of
store design, fixturing, lighting, and more by Gail Deibler Finke
They all have different ways of calcu- lating it, but more and more, retail experts agree it has to be done: fig- uring return on investment (ROI)
for elements of store design.
The reasons it hasn’t been done much in
the past are legion: There’s the somewhat
mythical idea that designers aren’t good at
numbers. Retailers are in a hurry to roll out
new stores and redesigns. And there’s the
idea that when schools teach the practical
side of design, they tend to concentrate on
materials and finishes, not on what spurs
people to buy.
Add to that the expense and time necessary to find out whether design decisions
pay, and you get what has become standard
in the retail industry: many decisions based
on what fits the budget, and few based on
what sells product.
But a tight economy and technological
advancements that make gathering data
easier and cheaper are changing all that.
METHODS OF MEASURING
“One of the sad ironies of store design is
that many Store of the Year winners are
closed within a year,” says Paco Underhill,
founder of New-York-based Envirosell and
one of the pioneers of using research to
drive store design. “The fact that something
wins accolades does not necessarily trans-
late into financial success.”
Underhill’s consulting firm, Envirosell,
uses analysis tools that the company has
developed over decades to help large retail-
ers make design decisions. Many of its ser-
vices depend on experts who visit the stores
and record things such as how often people
look at particular signs, or how many parts
of the store they visit.
But supplier companies are now devel-
76% of retailers do at least
some measurement of ROI of
store design or elements within
their stores.
38% of retailers expect new
technology to have a major
impact on their ability to
measure ROI for their company.
Source: Survey of A.R. E.’s Retail Council, November 2012
oping their own metrics to measure how
their products work—including how they
impact ROI.
IMPROVING TOP AND BOT TOM LINES
Hera Lighting, for instance, has developed
ways to measure both how much its products affect the retailer’s bottom line (in
investment and in maintenance costs) and
how much they affect retail sales.
“The vast majority of retailers still just
guess” whether or not lighting helps them
sell, says Brad Stewart, director of sales
for Hera Lighting, Norcross, Ga. It’s simple, Stewart says, to demonstrate which
lighting products cost least in the long
run. Electricity use and product longevity
are easy to measure, and Hera can provide
prospective customers with charts that
compare bottom-line figures such as initial
investment costs, cost to operate, and how
long a product will last.
Stewart says it’s also possible to use new
data-gathering technology to demonstrate
top-line figures as well. The formula he uses
to calculate ROI is: Gain from Investment
minus Cost of Investment, divided by Cost of
Investment. The key number to know—and
work to increase—is Gain from Investment.
Gain from Investment has been the
hardest to calculate because there are so
many design elements in every store that
measuring all of them is a daunting task.
Building a prototype for testing costs
money and time, and simply measuring
how many items are bought at the prototype versus those at a control site doesn’t
tell you what drives (or hinders) sales.
Hiring people to observe at a store for days
or weeks, and then hiring other people to
evaluate the data, is another expense.
According to Stewart, it’s now far easier and less expensive to evaluate design
decisions. One way within reach of almost
any retailer is to set up two displays with
different lighting configurations, and train
the store cameras on them. “Almost every
retailer I know determines ROI by sales at
the cash register, which is better than no
data at all,” he says. “But I prefer to have
video on two displays and see which works
better. How many people approach the display? How long do they stay? What’s the
product uplift?” An intern, he says, can
review the recordings to count and compare
the data.
As stores compete for customers, each of
whom spends less time in a store, Stewart
says that data will be invaluable. (For more
about retail ROI, see Stewart’s “Commentary”
on page 48.)
LOOKING BE YOND
INITIAL INVESTMENT
Jeffrey Spizale at Presentations Plus in
Long Lake, Minn., agrees. His firm calculates ROI differently (every company has
its own method) but, like Stewart, he says
that to get a true ROI the retailer must look
beyond initial investment and maintenance costs to what demonstrably attracts
