Whats is Sales Per Square Foot?
Sales per Square Foot (Spsf) is a metric that measures sales per unit area for retail stores
The Right Way to Use Sales per Square Foot
Sales per square foot can be used while 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.
This information can then be used to negotiate the rent with the landlord and make a decision about whether to open a store there, change an existing store to a smaller location or close the store completely.
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.
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.
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.
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.
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.
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