Retail, CPG and Logistics

Measuring the success of your merchandising strategy: Key metrics and KPIs

In recent years, the retail sector has grappled with sluggish expansion, experiencing modest annual growth rates, varying by segment. This lacklustre performance has been compounded by intense market competition and evolving consumer expectations for seamless shopping experiences across multiple channels.

These challenges necessitate a shift in merchandising strategies toward data-driven decision-making, omnichannel integration, and efficiency optimisation. Whether refining visual merchandising, retail, or merchandise marketing strategies, measuring success is essential. This article explores key metrics and KPIs that help businesses assess and optimise their merchandising efforts for maximum impact.

Key metrics and KPIs for measuring merchandising strategies

Below are ten critical metrics that provide valuable insights into your retail merchandising strategy, helping you make smart decisions that boost profits.

Sales per square foot

This metric evaluates the revenue generated per unit area of retail space, offering insights into space utilisation efficiency. A higher sales per square foot indicates effective product placement and inventory management. To optimise this metric, retailers should analyse product performance and adjust layouts to feature high-demand items prominently.

Gross margin return on investment (GMROI)

GMROI measures the profit return on the cost of inventory, indicating how well inventory investment translates into gross profit. A GMROI greater than one signifies that a company is selling its inventory at a value higher than its cost, reflecting profitable merchandising decisions.

Inventory turnover rate

This KPI assesses how frequently inventory is sold and replaced over a specific period. A higher turnover rate suggests efficient inventory management and strong sales, while a lower rate may indicate overstocking or underperforming products. Regularly reviewing this metric helps in making informed purchasing and markdown decisions.

Sell-through rate

Sell-through rate calculates the percentage of inventory sold within a given timeframe. It is instrumental in evaluating the effectiveness of merchandising strategies and forecasting future inventory needs. An 8% increase in full-price sell-through has been observed when retailers use integrated digital solutions for merchandising, showcasing the importance of data-driven inventory planning.

Average transaction value (ATV)

ATV measures the average amount spent by customers per transaction. Monitoring this metric helps in understanding customer purchasing behaviour and the effectiveness of upselling or cross-selling strategies. Enhancing ATV can be achieved by bundling products or offering volume discounts.

Conversion rate

In the context of retail, the conversion rate is the percentage of visitors who make a purchase. This metric is crucial for assessing the effectiveness of store layout, product placement, and overall customer experience. Improving the conversion rate may involve staff training, optimising store design, or refining product assortments.

Gross margin

Gross margin, calculated as the difference between sales and the cost of goods sold, represents profitability as a percentage of sales. It plays a crucial role in pricing and discount strategies, helping businesses maintain optimal profit levels and financial stability.

Weeks of supply

This metric indicates how long the current inventory will last based on average sales velocity. It assists in inventory planning and helps prevent stockouts or overstock situations. Regular monitoring allows retailers to adjust purchasing and promotional strategies proactively.

Customer retention rate

Retaining existing customers is often more cost-effective than acquiring new ones. This rate measures the percentage of repeat customers over a specific period. High retention rates suggest customer satisfaction and loyalty, which are critical for sustained revenue. Strategies to improve this metric include loyalty programs, personalised marketing, and exceptional customer service.

Visual merchandising effectiveness

Visual merchandising plays a significant role in attracting customers and influencing purchasing decisions. Assessing its effectiveness can be done through metrics such as foot traffic analysis, dwell time, and sales data for visually promoted products. An online retailer grew 100% year-over-year in eight years, partly due to its AI-driven visual merchandising strategies.

Technology integration for agility and enhanced insights

Digital transformation in merchandising can reduce manufacturing costs by 20%, driving higher profitability. At the same time, AI-driven tools amplify this impact by analysing vast datasets to reveal patterns, predict trends, and optimise inventory management—leading to more personalised customer experiences. For instance, AI can forecast demand for specific products, allowing retailers to optimise stock levels and reduce markdowns. Tools like AI-powered analytics, machine learning algorithms, and cloud-based inventory systems enable:

• Faster response times to market trends or disruptions.
• Real-time adjustments to pricing or promotions based on customer behaviour.
• Improved collaboration between merchandisers, suppliers, and other stakeholders.

Additionally, AI-powered analytics can assess the effectiveness of visual merchandising strategies by correlating in-store display data with sales performance, providing actionable insights for continuous improvement. Generative AI has been proving its value, with chatbots boosting conversions by 15%. With digital efficiency rising, 2025 could drive major advances in merchandising, supply chain, and marketing.

How can Infosys BPM elevate merchandising strategy performance?

Stay ahead in retail with AI-driven solutions from Infosys BPM. As customer expectations, workforce dynamics, and technology evolve, Infosys BPM provides AI-driven solutions for merchandising, category management, and store operations. Trusted by leading global retailers, our advanced AI, analytics, and automation capabilities streamline processes, enhance efficiency, and elevate customer experiences. Explore how we can help you navigate the future of retail seamlessly.