DEA Analysis of Modell's Sporting Goods Store Performance

Introduction to DEA and Store Metrics

The Data Envelopment Analysis (DEA) study conducted on Modell's yields a wealth of information regarding the productivity of the chain's stores, even without engaging in detailed statistical analysis or quantitative manipulation of the data. A cursory examination makes it clear that traffic is not correlated with store size, nor is there a direct or observable relationship between store size and the number of transactions carried out at any given location. There is not even a strong relationship between traffic and transaction volume, although examining these two numbers in relation to each other yields an important metric.

All of this suggests that certain practices within the stores—and in some cases perhaps the physical environment of the stores—are more responsible for generating sales than are the physical constraints of each individual store itself. That is, bigger stores do not necessarily experience more traffic or generate more sales than smaller stores, and vice versa.

Conversion Rates and Store Productivity

Dividing store traffic by transaction volume provides a loose estimate of productivity. From this calculation it can be seen that the store identified as KPLZ King's is far and away the top performer, with a conversion rate of over sixty-five percent, compared to runner-up Pelham's rate of just over forty percent. MCI brings up the rear with a conversion rate under six percent, while Lehigh Valley is the next least-productive operator at thirteen percent.

This is only one measure of productivity, and other measures yield slightly different results. Nevertheless, the traffic-to-transaction conversion rate is an effective way to assess store performance in terms of the ability to generate sales from the amount of foot traffic and sales potential provided. Understanding retail conversion rates is central to diagnosing where a store is losing potential revenue.