Retail Dogma

Sales Per Square Foot (Spsf): The Right Way to Use It

There has been a lot of debate recently on whether or not sales per square foot is a useful metric for retailers. This is due to the rise of omni-channel, and having revenue streams that are not connected to the shop floor.

However, sales per square foot can still be used to measure the improvement in productivity & efficiency of a particular store over time.

How Not To Use Sales Per Square Foot?

Many people ask the wrong questions of ” What is a good sales per square foot?“. There simply isn’t any good or bad sales per square foot, even while comparing similar retailers of the same segment or stores belonging to the same retailer.

To illustrate this let’s look at two stores with exactly the same area and they both belong to the same brand.

Store 1 is 1200 sq.ft. and is located in Times Square

Store 2 is 1200 sq.ft. and is located in a rural area

Both stores carry the same merchandise and have the same store layout.

Now the question is: Do you expect both stores to have the same Spsf?

The answers is of course not!

Store 1 will definitely have higher Spsf due to it being in a better location and having a different customer demographic. Of course this store will also have a higher rent rate per square foot, and that’s why the high sales per square foot still doesn’t mean that the store will be profitable.

Some would say that a high Spsf is a measure of the efficiency of the store management.

I would say: not really.

As we will see below, most of the things that go into increasing sales per square foot are actually not the store manager’s responsibility. So using this measure as a KPI for the store manager is just unfair.

As we have seen here, the location and customer profile alone play a big role, and this has nothing to do with the store team being efficient.

The Right Way to Use Sales per Square Foot

Sales per square foot and profitability
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The only time I use sales per square foot is when I am assessing the profitability of a location (existing or new) and seeing if the rent per square foot makes sense for the Spsf this location is generating.

I then use this information to negotiate the rent with the landlord and make a decision about whether I want to open a store there, change an existing store to a smaller location or close the store completely.

As we have mentioned, if the rent per square foot is too high, a high Spsf might not be enough to justify it. That’s one way to use sales per square foot: To rationalize the rent you are paying and negotiate it.

Another way to use Spsf is for tracking progress over time after applying the below measures.

How to Increase Spsf?

To increase sales per square foot, you first want to know what affects it. Here we will discuss certain measures that can be used to improve it.

Store Layout

If you are having a low sales per square foot, chances are, you are not utilizing the space you have to the max. So the first thing to do is to walk the floor and see if you can change the layout to incorporate more merchandise, without affecting customer navigation.

Correct Buying

Another reason your Spsf are low could be your buying process. Maybe you are not buying the correct quantities and so your sales are being missed, while you are getting the traffic that you need.

It could also be that you are not buying the correct depth or breadth for the products you are carrying, and hence also missing sales opportunities.

It is not only about the amount of OTB that you calculate, but also about how you will allocate this OTB to different SKUs.

Staff Scheduling

You might be getting high traffic in peak periods, but your scheduling is not aligned with this traffic. You want to schedule your top sales people during the peak hours. This will then translate into higher sales, and of course higher Spsf.

Pricing Strategy

You could be leaving a lot of money on the table. If you are utilizing old methods like keystone pricing or you are just pricing all your products at the same margin by “just doubling your cost price”, you are definitely leaving a lot of money on the table, and might be missing a lot of potential sales or losing some potential customers.

Pricing is an art, and when you do it correctly, you will get more sales and more profits at the same time.

Tracking Results

After applying all of the above methods to try and increase sales per square foot, we then track the progress over time. If there is improvement, then the low spsf was our fault and now we have a more efficient store. If, on the other hand, the spsf did not improve and the store is losing money on the bottom line, then it is time to use this information and talk to the landlord for lower rents or moving out of this location to a smaller location.