Effect of Traffic on Sales and Conversion Rates of Retail Stores

Attracting shoppers to stores and converting the incoming traffic into sales profitably are vital for the financial health of retailers. In this paper, we use proprietary data pertaining to an apparel retailer to study the relationship between store traffic, labor, and sales performance. We decompose sales volume into conversion rate (defined as the ratio of number of transactions to traffic) and basket value (defined as the ratio of sales volume to number of transactions) and analyze the impact of traffic on sales and its components. We find that store sales volume exhibits diminishing returns to scale with respect to traffic. We determine that this relationship is driven by a decline in conversion rate with traffic (as opposed to a decline in basket value). Our results show that an increase in conversion rate is associated with an increase in future traffic growth. We also find that increases in intra-day and inter-day traffic variability are associated with a decrease in store sales volume, while an increase in store labor is associated with an increase in sales volume.