How to Understand Sales Pattern in Retail Business?

It is difficult to make predictions, especially about the future. – NEILS BOHR, Danish physicist

What is Sales Pattern?

The sales pattern is a collection of data about the sale of a particular product or group of products in the business for a given period and displaying it graphically to understand it’s behavior. These sales patterns are used in retail businesses to identify whether the business goals are being met, the effect of price changes of a particular product impacts sales, sales response to advertising, etc.

Understanding the sales pattern in retail business always helps to correlate the sales variations with respect to the various events happening in and around the business every day. The continuous monitoring of the sales pattern would certainly help the retail business to foresee the upcoming risks and take precautions.

Underlying Issues

By just looking at the numbers one cannot decide whether the low sale caused by a natural event or special event. Natural events are inherited in business as these causes cannot be removed. It is always going to be. For example, every day sales will have some variation, which cannot be controlled. But, some events would externally impact the sale. For example, the absence of employees, sudden power supply failure, holidays, etc.

Special events need attention and the actions to be taken immediately for these events to avoid recurrence. When these variations are studied using a statistical tool called ‘control chart’, we can differentiate special and natural events clearly.

Understanding Sales Pattern

Let us take an example of a fruit seller. The seller wants to identify whether his sales pattern in retail business follows normal special events. He has a sales record for the last 3 months for our analysis. The below-mentioned data provides the sales summary for 15 days which is taken as a sample from the whole set of data for representation purposes.

There are many types of control charts available. The most relevant control chart for this analysis is the Individual Moving Range (I-MR) Chart. To understand the selection guide, calculation, and interpretation of the control chart, I would recommend you reading further by clicking here.

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The above figure shows how the control chart would look like for the given sales data.

The top line graph is an individual chart that represents the sales trend for individual value. Its centerline indicates the mean value of sales (Rs. 7749) which means the complete sales value for the 15 days lies around this mean value with the variations. These variations are from maximum value Rs. 10,415 to a minimum up Rs. 5,083.

These values are drawn as an upper control and lower control lines.

Any values lying between these lines indicate that the sale value has normal variations around the mean.

Now, let us look at the second graph which is a moving range (MR) chart. This chart is plotted with the difference in the sales value of the previous day and current day. The upper and lower lines give the control limits of the values which are calculated using formulae.

Conclusion

By looking at the chart, you can understand that the sales value between 10 Nov and 11 Nov has a huge difference and it almost reaching to the lower control limit. Though the limits outside the control line call for an action, it is advisable to understand why the sales variation is more during the above-mentioned days.

The fruit seller should be advised to identify the reasons for this variation and prepare himself for the future.

MR-chart is useful to understand the process variability with smaller samples and individual data. The understanding of this statistical tool would help a retailer in knowing the external impacts of a business and help him to take correct decisions.

By Surender Gowthaman

Blogger, Theory of Constraints-Lean-Six Sigma Practitioner, Lead Auditor in QHS

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