If you’re a retailer, it’s important that you keep a constant eye on how your store is performing. One of the most effective ways to do this is to rely on hard facts and data about your business—in other words, retail metrics.
Tracking retail metrics is essential to improving store productivity, maximizing efficiency, and making the best use of your time and resources. Data on sales, inventory, employees, and customer relations will help you determine whether you are meeting your business goals.
According to a recent report from McKinsey, the gap between retail-industry leaders and laggards has widened. To pull ahead and stay on top of the game, you need to understand the economics of your business and track the metrics that matter to its success.
What metrics should you look at to be more efficient? That depends; every business is different. Some metrics, or key performance indicators (KPIs) will be more important to you than others.
For brick-and-mortar stores, measuring sales per square foot is a way to gauge how well you are using your available retail space. In this article, we will help you understand more about the sales-per-square-foot metric, taking a close look at its importance and limitations.
What is sales per square foot?
Sales per square foot is a calculation of the average revenue earned per square foot of your retail space.
or years, this metric has been a critical measure of success in the brick-and-mortar retailing industry. A high sales-per-square-foot number indicates that your store’s management is efficient in driving sales in the space allotted to them. It means they are apparently doing all the right things when it comes to choosing and displaying products in-store.
Why is it critical to track sales per square foot?
- Measure and compare store performance
- Inform merchandising decisions
- Analyze staff performance
- Identify trends over time
Basically, sales per square foot helps you understand if you have theright product at the right place at the right price.
Sales per square foot is a measurement of productivity. It also gives the business an idea of whether the merchandising mix and the amount of merchandise out on the floor are doing their job.by Rebekah Kondrat, the Founder of Rekon Retail
Let’s take a look at a few reasons why, even in the age of omnichannel marketing and monitoring, this metric is crucial for brick-and-mortar retailers.
1. Measure and compare store performance
In many ways, sales per square foot is a way to rank a store’s visual merchandising efforts. It’s a great indicator of how well you as a retailer are using your resources (store layout, merchandising, and staff).
For instance, let’s say you have a 5000 sq. ft. store with only three fixtures in it. You clearly don’t have enough merchandise displayed to make effective use of the space, which you can verify by calculating the (almost certainly low) sales-per-square-foot figure.
2. Inform merchandising decisions
Retailers often worry about whether they have the right merchandise out. Curating a merchandising mix that hits the mark is not an easy task, and this is where the sales-per-square-foot metric comes in handy. It will help you identify which products are more popular than others, and to make smarter merchandising decisions.
For example, let’s say, you have a hero product that takes up 80% of your store’s display space. According to the sales-per-square-foot metric, this hero product only accounts for 50% of your overall sales, which could be a good reason to allot less store footage to your hero product.
3. Analyze staff performance
Sales per square foot also helps you measure sales reps’ performance, i.e. how well they use what’s out on the floor to generate sales. This will help you figure out if your sales reps need training, or if you need to replace them.
You can even drill down to measure the human productivity of your staff by comparing sales per square foot with sales per man hour (or SPMH or sales per labor hour).
4. Identify trends over time
A comparative analysis of your sales per square foot data over month-on-month or year-on-year will help you identify certain trends. These trends, especially seasonal trends, are key in improving your sales performance.
Let’s say, for example, that in the last holiday season, you saw a spike in the sale of mugs for hot chocolate. You can be well-prepared for the upcoming holidays by stocking up on a wide range of mugs.
Limitations of sales per square foot
Sales per square foot has been a great metric to evaluate the store’s performance. Given the pandemic-driven shift to ecommerce, however, this metric may slowly be losing its relevance.
1. Doesn’t account for omnichannel
Retailers are now taking a hybrid approach to sales, using both physical stores and online sales channels. Given this, sales per square foot may be a less effective tool for evaluating the performance of today’s retail businesses.
2. Comparative metric
Owing to factors like the industry’s continuing shift to online sales, you cannot consider sales per square foot in isolation as a metric for success. You will have to use it in conjunction with other relevant industry metrics to evaluate your business’s overall performance.
3. Does not apply to Ecommerce
For example, ecommerce sales account for a large chunk of global retail sales. As sales per square foot only works for physical stores, it is of no use to today’s growing number of purely or largely online retailers.
How to calculate retail sales per square foot
Now that we have a better understanding of sales per square foot and its importance, let’s look at how you calculate arrive at it.
To calculate this metric, divide total in-store sales by the available selling area in the store.
Sales per square foot = Sales / Store’s total square feet of sales space
In the last month, for example, Jenny’s Apparel Hub, a family clothing store, sold $1 million worth of merchandise in its 2000-sq-ft shop. In this case, the store’s sales per square foot will be:
$1,000,000 / 2000 sq. ft. = $500 per square ft.
What is a good sales per square foot in retail?
Sales per square foot is a metric that varies across the retail industry. Leading the charts are the retail giants—Apple Inc. and Tiffany & Co.—selling high-value goods at smaller stores. Apple generates $5,500 per square foot, and Tiffany & Co.brings in nearly $3,000 per square foot.
There is a stark difference in brands from other sectors. Walmart and Target, for example, reportedly generate $400 and $300 per square foot, respectively.
To obtain actionable data, in other words, you need to compare your store’s sales per square foot against that of your direct competitors. You also need to make sure you are considering competitors who work in comparable or similar retail categories—you can’t compare a high-end clothing store that sells $1000 jackets with a boutique family store selling $20 t-shirts.
How to increase sales per square foot
- Increase basket size
- Improve store layout
- Build loyalty programs
- Host in-store events
- Increase local marketing
- Train employees on upselling and cross-selling
- Optimize product assortment
- Leverage your online audience
Here are a few key strategies that you can implement to generate higher sales per square foot.
1. Increase basket size
As noted, stores that sell high-ticket items like jewelry or electronics always generate higher sales per square foot. To increase your sales per square foot, therefore, you need to increase your transaction value. Merchants that sell everyday products need to look at ways to increase their basket size and get their customers to buy more.
2. Improve store layout
Your store’s layout plays a crucial role in improving your sales per square foot. Optimize spaces that look crowded and clean up untidy or messy corners. Ensure that your store is spacious and move fixtures and signage around to enable a smooth flow of in-store traffic.
3. Build loyalty programs
Loyalty programs are a great way to get your customers to shop more at your stores. It also encourages them to keep coming back for more rewards. Points per purchase are one of the most common loyalty programs: the customer earns redeemable points with every purchase.
4. Host in-store events
The global lockdowns brought about a pent-up demand for in-store experiences. This explains the 43.8% spike in customer foot traffic across stores in the US last year. In-store events are a great way to improve the shopping experience for customers.
5. Increase local marketing
Targeting your local audience, in the same town or region as your business, is another great initiative to increase sales per square foot. This works well for a restaurant or a boutique retail store tied to a specific location.
6. Train employees on upselling and cross-selling
Another effective strategy is to leverage in-store mechanisms like cross-selling and up-selling. This will ensure the customer walks out with more products. Train your sales reps at selling items that complement the product the customer is purchasing. You can even consider promoting a pricier version of the product the customer has chosen.
7. Optimize product assortment
Your store’s floor space is precious. You cannot waste space displaying products that are not selling. Your sales and inventory reports for a particular time will help you nail down products that are selling faster than others. Make sure you sort your product assortment and stock up on the best-selling products and collections.
8. Leverage your online audience
Online sales have seen a sharp rise in recent times. By 2025, online sales will account for a quarter of total global retail sales. While shoppers like to browse online, many of them prefer an in-store experience when it comes to purchasing the product.
- BOPIS: Buy Online, Pickup In-Store (BOPIS) is a trend that is now coming to be a hit with customers. BOPIS follows the ‘click and collect’ model, where customers can select their products online and head to the nearby store to pick them up in person. The home improvement chain Lowe’s introduced the concept of BOPIS back in 2019. Today, they are also deploying pickup lockers at their stores in the US.
- BORIS: Buy Online, Return In-Store (BORIS) is another omnichannel strategy that can increase sales per square foot. In this case, online customers come to physical stores only to return their products. This concept helps them return products with ease. While this is beneficial during slow periods, however, it can create congestion during busy seasons.
Improve sales per square foot at your store
While sales per square foot is important, it should not be the only metric you use to measure your store’s success. Look at ways to continuously improve your in-store experience—the more people you have walking into your store, the more sales you drive!
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