WOW! There’s nothing like a good solid definition of ROI to get you up and running in the
morning, right? Not!
In the world of retail environments, how many people do you
know who pay attention to the subject of ROI, much less get
excited about it? How often does the subject come up in conversation? Have you ever wondered why not?
After all, a return for the investor is the main reason for our
existence in the business world. No doubt those of us whose companies have successfully weathered the economic storm of the past
few years didn’t do so with our head in the proverbial ROI sand.
Regardless, in the world of retail design, the ROI of a new design
has been considered more subjective than objective.
In the lighting world, ROI has certainly become king. Energy
costs have risen from $.07 per K WH to $. 11 per K WH in just a few
short years. When we combine this fact with significant improvements in lighting technologies, finding a solid return has never
been easier. In fact, lighting might represent the lowest-hanging
ROI fruit in the retail world.
Get Your ROI Groove On
RETURN ON INVESTMENT – ROI
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency
of a number of different investments. To calculate
ROI, the benefit (return) of an investment is divided
by the cost of the investment; the result is expressed
as a percentage or a ratio.
THE RETURN ON INVESTMENT FORMULA:
ROI = (Gain from Investment – Cost of Investment) Cost of Investment
A NEW METRIC IN THE EQUATION
Since our company is so focused on presenting ROI ideas, the topic
naturally arises with friends in other supplier segments such as
flooring, shopping carts, signage, and others. Combining all feedback, it’s obvious to us that retailers are starting to pay at least as
much attention to life cycle costs as they are upfront costs. This is a
departure from the past. For quite some time, it seems, many retail
procurement departments have been judged by only two metrics:
1. Did we get it there on time?
2. Did we get it there at a lower cost?
Maybe it’s due to the economy or simply industry evolution, but
another metric has been cropping into the equation lately:
3. What will be our total cost over the next five years?
THE CHALLENGE OF CALCULATION
On the other side of the coin is the top-line
effect of a given investment, often a forgotten parameter in a true ROI calculation. It’s
great whenever you can find a nice return from
straight bottom-line savings, but how about
when an investment also adds to the revenue
stream? How do you accurately quantify numbers if added revenue came from a change in the
retail environment or other parameters such
as improved consumer confidence, odd timing, or that Oprah came in one day and bought
out your inventory? Maybe this is why top-line
metrics are often excluded from investment
Yet for many suppliers (such as those in signage, store music, digital display, store design,
Through video and in person tracking, they are able to quantitatively tell you how shoppers are reacting to specific changes in
a store or display design—including the most important—
product uplift metrics. New technologies can actually track the human
eye, which allow researchers to determine exactly what consumers focus on throughout their guest experiences. Most retailers
are already implementing cell phone tracking systems that allow
instant access to a plethora of data. At the push of a button, they
will know everything from their customers’ average age to whether
they went to a competitor’s web site while in the store. Perhaps
most interesting to display manufacturers and retail designers will
be the traffic patterns of customers in a given environment. The
word on the street is that we will see more and more such technologies on the market in the very near future.
With these new and expanding analytical approaches, retailers
will be more capable of quantifying the success or failure of specific
store or display designs. This may be good news for some and scary
news for others.
Regardless, the fact is that fewer people are spending less time,
with less money, in a reduced overall amount of retail space.
Retailers have never needed our help more. It’s time we all sharpen
our pencils and get our “ROI groove on.”
Director of Sales
Brad Stewart is director of sales for Norcross, Ga.-based Hera Lighting.
Contact him at firstname.lastname@example.org or 770-409-8558, ext. 123.