Real Leading Indicators in Retail
When it comes to information that is used to make managerial decisions, it’s useful to think of it in terms of three timeframes: Lagging indicators (which are the bulk of those in use) reflect past events – you can’t change them. Current indicators tell you where you are. The most valuable, and often the least used are leading indicators – information that tells you where you’re likely to be going. Leading indicators are often subjective, however, meaning that people frequently disagree about their meaning and therefore don’t use them effectively.
I was therefore really intrigued to run across an article in Forbes (October 1, 2007 beginning page 52) that spells out the effective use of leading indicators by Christine Augustine, an analyst with Bear Stearns. She makes recommendations on retail stocks based on her observations. She’s got a checklist that she uses to figure out where a particular retail establishment is going. Among the items on her list:
How full are the parking lots?
How clean are the stores?
How well stocked are the shelves?
How much of the apparel has been marked down or put on clearance?
Are there enough of the basics and are they easily accessible?
How many cash registers are open?
How many people are waiting on line?
How long is the average check out time?
A red flag for her is if the store seems short on staff and the end of the quarter is near. She noted, “It may mean the store is cutting back on payroll expenses to make sure it makes its numbers for the quarter.”
Specific, tangible measures such as these are a good first step to making sure that grand strategies conceived in headquarters translate to actual behavior at the operating level.
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