Effect of Traffic on Sales and Conversion Rates of Retail Stores

Manufacturing and Service Operations Management, Forthcoming

Mays Business School Research Paper No. 2011-4

Posted: 6 Mar 2011 Last revised: 19 Sep 2012

See all articles by Olga Perdikaki

Olga Perdikaki

Texas A&M University - Department of Information & Operations Management

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School

Jayashankar M. Swaminathan

University of North Carolina (UNC) at Chapel Hill - Operations Area

Date Written: August 29, 2011

Abstract

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 1 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 conversion rate declines with increasing traffic and lower conversion rate is associated with decrease in future traffic growth. Our study underscores the importance of in-store operations in driving the financial performance of retailers.

Keywords: Store Performance, Traffic Variability, Traffic Uncertainty, Store Labor Management, Retail Operations

Suggested Citation

Perdikaki, Olga and Kesavan, Saravanan and Swaminathan, Jayashankar M., Effect of Traffic on Sales and Conversion Rates of Retail Stores (August 29, 2011). Manufacturing and Service Operations Management, Forthcoming; Mays Business School Research Paper No. 2011-4. Available at SSRN: https://ssrn.com/abstract=1778644

Olga Perdikaki (Contact Author)

Texas A&M University - Department of Information & Operations Management ( email )

430 Wehner
College Station, TX 77843-4218
United States

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

Jayashankar M. Swaminathan

University of North Carolina (UNC) at Chapel Hill - Operations Area ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

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