How Pareto's Law Works in a Shoe Retail Store

Analysis of the company's performance is an important quality of a manager. Many indicators in the retail business are subject to analysis, primarily - sales planning and inventory balances, KPI performance by employees, the effectiveness of marketing campaigns, the number of sellers, their work schedules and many other factors that affect the final result of the store. In this material, SR expert on increasing sales in shoe retail Evgeny Danchev, using the Pareto principle, understands the reasons why revenue and volumes of goods sold are distributed very unevenly between weekdays and weekends. The author is confident that the Pareto principle is indispensable in the systemic analysis of sales management efficiency and sales results. But it is important to apply it correctly and interpret its meaning.

Evgeny Danchev -

business coach, consultant, expert in increasing sales of the fashion market. Author of the book "A Practical Guide to Increasing Sales of Shoes and Accessories". Author of sales scripts "60 responses to customer objections in a retail shoe store" and "Standards for retail shoe sales." Creator of an online school for fashion market leaders.

@evgenydanchev, https://onlineschool.wconsulting.su/

The title of this article refers to the Italian economist and sociologist Vilfredo Pareto, after whom the 80/20 principle is named (which many have probably heard of, but never fully understood what it is) - an empirical rule, which in a very general form is formulated as "20% of the efforts give 80% of the result, and the remaining 80% of the efforts - only 20% of the result." The Pareto principle is indispensable in the systemic analysis of sales management efficiency and sales results. It can clearly show that the business in a specific period of its development is still very far from making optimal decisions. If 20% of salespeople bring the company approximately 80% of revenue, this means that there is a serious imbalance in the business, and such work results cannot be called effective, since the remaining 80% of salespeople bring only 20% of revenue, which means that their results and their work can and should be significantly improved. The Pareto law shows non-linearity in the results of employees with seemingly equal resources.

Let's look at how the 80/20 principle works using the example of salespeople's performance over the course of a month compared to customer traffic.

As the main document for analysis, we will take the final sales report for the month and compare its figures with the same period last year. From this general report, we select another additional, specific report, in which we can separate the results of the store's sales on weekdays and on weekends, analyze them and then compare them with incoming customer traffic.

Further in the material we will analyze the results of the work of companies that I had the opportunity to consult at different times, and we will take as a basis the data of stores located in shopping centers, where on weekends there is clearly increased customer traffic.

On average, there are about nine days off in each month. If we consider that there are 30 calendar days in each month, then it turns out that 30% of the total number of days are weekends. But sales results on weekdays and weekends are distributed very unevenly. The accumulated sales statistics of my clients show an interesting ratio: approximately 50-55% of revenue per month comes from weekends, which make up only 30% of the total number of calendar days, and the second part of revenue - 45-50% - comes from weekdays. Moreover, these statistics begin to work even more nonlinearly when company managers begin to pay attention to them and put more resources into increasing sales on weekends.

The Pareto law shows us that there is a clear unevenness in sales. At least half of the sales in stores per month are generated on fewer calendar days. The main question that a manager or owner should ask themselves is:

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“How effectively does the company use these resource days to fulfill the sales plan, and is it possible to increase the return on salespeople’s work on these days?”

There are several criteria by which you can evaluate the effectiveness of a store on weekends compared to weekdays, but in this article it will be enough for us to evaluate it (effectiveness) by one most significant criterion, which is obvious and lies on the surface. Take the work schedule of your sellers for a month and compare it with the number of customers who come into your stores. Provided that the store is located in a shopping center, I assure you, you will see a big difference in the distribution of traffic between weekdays and weekends.

According to the given schedule, three salespeople should go to work every day. Sometimes there are situations when on certain weekdays even four salespeople go to work, and on weekends still three. This situation occurs in many retail businesses, because schedules are made for specific people and their wishes - to work less on weekends - are usually taken into account.

But if you look closely at the distribution of customer traffic in your retail business, there will be a clear bias towards weekends. The most common weekday/weekend traffic ratio is 40/60 (%). This statistic suggests that there are, on average, 50% more customers on weekends during the month.

The customer traffic ratio of 40/60 is averaged over the month between weekdays and weekends, but if we take the increase in customers on a single weekend day and compare it with any day of the work week, the traffic will be 2-3 times greater.

Just imagine this situation. On Friday, 100 people come into the store, and on Saturday - 250 people. And according to the schedule, both on Friday and Saturday, three salespeople work. And how can you effectively work the weekend and satisfy the needs of all customers as much as possible? Yes, with high traffic, the final sales result on the weekend will, of course, be higher than the result on the weekday, but the company will still sell less than it could, lose money and, as a result, lose profit. If the revenue on the weekend is 50% more than on the weekday, and there were 150% more customers, then it is obvious that it was possible to sell for a larger amount; it is just that some of the customers, ignored by the salespeople, left the store without buying.

In the given example, three salespeople come to work every day, and here we can talk about an incorrectly drawn up work schedule. How can you bring the same number of salespeople to work on weekends, if the traffic statistics show its growth, and multiple growth?! An important quality of a manager is the ability to draw up a work schedule for salespeople not taking into account the comfort zone of employees, but taking into account the goals and interests of the company. And this is exactly what an analysis using the Pareto law is needed for. If you cannot draw up a schedule in which you will have not three, but four or five salespeople working on weekends, then you simply do not have them on staff, you do not have enough people, and then you need to recruit them additionally.

In our example, the Pareto law works like this: for 30% of the working time per month (weekends), the company receives about 50-55% of revenue. Agree - this is a significant non-linearity in sales results. So, we should concentrate on these 30% and use weekends as much as possible to increase revenue.

Only by taking control of the non-linearity of sales during the month, correctly calculating human resources, can you significantly increase the store's revenue. When my clients begin to restructure the work schedules of sellers and focus on sales results on weekends, the non-linearity increases even more. In my opinion, it is quite possible to achieve a sales ratio in which 30-60% of revenue can be received in 65% of working time per month. At the same time, you should not think that revenue is very low on weekdays. At the initial stage of changes, it is important to achieve an increase in sales on weekends, since they are more resourceful for the company, taking into account the significant increase in customer traffic. It is important for you to correctly interpret the meaning of the Pareto law. Its essence is not to bring the indicators (sales results) to a 50/50 ratio. On the contrary, the law shows the direction of efforts in the direction where you can get a much greater result, while either refusing or ignoring for a while some processes and actions that do not fall under the efficiency criteria.

If you want to achieve much higher sales figures in your business, you need to make decisions by constantly analyzing the processes that are responsible for the final result and think like a leader, taking into account the 80/20 principle.