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Discover the Economics Behind Omnichannel Retail

September 28, 2021
Discover the Economics Behind Omnichannel Retail

You’ve heard of omnichannel retail, but how would adopting a platform-based, full-scale strategy impact your bottom line?

There are a number of factors at play that will impact the success of your retail operation. Let’s take a look at these key metrics and the role they play in strengthening business growth.

Key metrics for omnichannel retail

Average visitors per day: It’s an obvious insight, but the more shoppers who visit your store, the more every other positive metric you track should increase. This is why location and foot traffic are so essential to retail success. Every customer who comes through the door has the potential to help improve your top-line metrics, and the more the better.
Conversion rate: Almost as important as the total volume of shoppers in your store is your conversion rate—the percentage of shoppers who visit your store and actually make a purchase, rather than simply browse. This can vary based on the product and average order value, but a higher conversion rate can offset lower traffic or turn a great store into the crown jewel of your operation.

Average order value
: Another key metric for overall retail health, AOV is an essential cornerstone of your brand’s brick-and-mortar success. Inherent costs, sales volume, conversion rates etc. can all offset or exacerbate the impact AOV has on your bottom line, but there are few metrics that increase the profitability of a store more quickly.

Gross profit margin
: This is your profit margin including discounts and returns. It represents all the money you have available to cover the costs of retail. Even if your product has a high base profit margin, expensive returns or deep discounts can reverse profitability and make it difficult for any store and brand to be successful.

Store term length: Within its first two years, the longer a retail store is open, the higher the chances of its success and the greater its profitability. This is because more shoppers discover it, more come back to shop again, and brands gain a better understanding of the product mix that will work for the store’s specific customer base and location.

Marketing spend
: Marketing is a top-line expense, but an essential one. When done effectively, this marketing spend will translate into higher visitor numbers and a higher AOV. That’s because store awareness starts at zero, so promoting a store in its local market is paramount to success in physical retail.

Ecommerce sales: Brands see a 27% increase in ecommerce traffic on average after opening a store, and the reverse This is from the natural billboard effect that comes with opening a retail store in a prime location—it’s free advertising and awareness for everyone who walks by or shares their experience via word of mouth. Even if they don’t stop inside, shoppers will be more primed to search for your store online or click on an ad after seeing it in person.

How do these metrics impact store economics?

To help Leap users get to the bottom of that question, our team has created our new Toy Model.

Want to see how the Leap Platform can help you succeed with retail? Our new Toy Model makes it easy to understand the economics of retail at a high level.

The Toy Model is a graphic calculator that displays core economic concepts about opening retail stores with Leap. You can view model charts that explain profit and loss, cash remittance, Leap fees, and lifetime value generated. By manipulating these model inputs and watching how the animated chart shifts it’s easy to get a stronger understanding of how all the inputs above affect the economics of your retail store or stores with Leap.

Simply adjust some basic variables like average visitors per day, purchase conversion rate, and AOV, and see how your profit and loss, fees, and lifetime value would be effected in real time. To unlock the model, you may have to complete some onboarding questions if you haven't already.

Opening a retail store in general, and with Leap in particular, has many benefits. Find out how Leap can help you learn how to successfully execute an omni-channel retail strategy.

Try out the Toy Model for yourself. 

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