The financial stability of UK retailers could be at risk due to limited tracking of profitability, warns new research by ROI Hunter, a product performance management platform.

Despite 80% of retail marketers acknowledging the importance of profitability as a key performance indicator (KPI), only 32% are currently actively measuring it. This disparity is posing a threat to the financial stability of retailers in a challenging economic climate.

ROI Hunter's analysis also revealed that a fourth (25%) of retail marketing respondents hold profitability as the most crucial metric for digital advertising. The research encompasses insights from advertising and marketing professionals at top retail organisations in the UK and consumers.

Karel Schindler, CEO of ROI Hunter, highlights a notable problem in the retail sector: there is a significant gap between recognising the significance of profitability and effectively monitoring it. This disparity raises concerns about the industry's trend.

Schindler emphasises that brands need to comprehend the profitability of each product, cautioning against relying solely on algorithms from platforms like Meta or Google for product promotion. Without a clear understanding of profitability, managing promotional efforts becomes ineffective.

Karel Schindler said, "The startling disparity between understanding the importance of profitability and actually tracking it in an actionable manner identifies a concerning trend in the retail sector."

"If brands fail to understand the profitability of their individual products and rely only on algorithms from Meta or Google for product promotion, they can't manage their promotional efforts effectively."

This inability to optimise promotional campaigns could prevent brands from transferring budgets from unprofitable to profitable products within a campaign, thereby undermining their ability to enhance the bottom line.

Furthermore, retailers are also failing to take actionable steps to increase profitability, with over half (56%) unable to identify which products are likely to become deadstock. Without an understanding of the ad spend behind products, commercial departments remain uncertain whether unsold stock should be discounted or if it merely lacks adequate promotion.

Schindler recommends harnessing technology that utilises product performance data to establish a direct connection between campaign expenditure and overall profitability. This connection, according to him, can enhance financial stability even in the face of economic uncertainties.

Retailers can create a comprehensive overview of product performance by integrating product data from various marketing channels with business data about individual items. This integrated perspective offers marketers valuable insights into the margin, aiding in understanding the profitability of each product. Additionally, commercial teams gain insights into the advertising expenditure associated with the products they handle, including purchases, pricing, and discounts.

Schindler adds, "By combining product data across marketing channels with business data about individual items, retailers can create a combined view of product performance."

"This view provides marketers with margin insights needed to understand individual product profitability, while giving commercial teams insights into the ad spend behind the products they purchase, price, and discount."