What Is Sales per Square Foot?
The dollar value of sales per square foot has, for many years, been a measure of success in the brick-and-mortar retailing industry. It is simply the average revenue earned for every square foot of sales space.
In the age of "omnichannel" marketing, this number may be less relevant, at least for large retail companies. However, it still can be a critical measure of success to an independent local business.
- Sales per square foot is a key measure of success in brick-and-mortar retailing.
- Managers and analysts consider a higher number to be proof of greater efficiency.
- The measure is becoming less relevant in today's omnichannel marketing environment.
Understanding Sales per Square Foot
The measure of sales per square foot is used by businesses and retail stock analysts to measure the efficiency of a store's management in creating revenues given the amount of sales space available to them. It is tracked over time simply by totaling sales revenue over a period of time and dividing it by the total square footage of retail space available.
There is no absolute good or bad number. The higher the sales per square foot, the better job the store's management is presumably doing in selecting, displaying, and marketing the store's products.
Studies show that this figure is dropping. As more stores increase their presence online, traditional brick-and-mortar locations are bound to feel the pinch. The economic impact of problems like the global COVID-19 pandemic also impact retail sales per square foot. According to Colliers, sales per square foot in 2020 were $338.3, a decrease from the 2019 figure of $382.9. This is bound to affect the physical retail space as analysts predict that as many as 100,000 retail stores could close by 2025.
It Varies Widely
There is a wide dispersion of this metric in the retail industry. At the higher end of sales per square foot, Apple Inc. (AAPL) produces around $5,500 per square foot, and Tiffany & Co. (TIF) generates approximately $3,000 per square foot. Both companies sell small, high dollar value products in smaller store spaces. By contrast, sales per square foot for Walmart (WMT) stores is approximately $400 per square foot, while Target (TGT) is around $300 per square foot.
Analysts generally compare a retailer's sales per square foot against that of its direct competitors in comparable retail environments. A retail analyst considering sales per square foot might compare Target unfavorably to Walmart, but he would probably not compare Walmart unfavorably to Tiffany. They are in the same business but certainly not in the same sector.
Does Sales Per Square Foot Still Matter?
Sales per square foot may no longer be as relevant to management or analysts as a measure of efficiency as it has been in the past. "Omnichannel" is the new buzzword in retailing that describes a hybrid approach to physical stores and online venues. For example, the Apple stores may be as much about marketing, customer service, and image creation than about direct sales volume.
Measuring Success as a Small Business Owner
Then again, sales per square foot might mean the difference between success and failure to a small locally-owned business, with or without a website. The number relies on many factors including product selection and display, staff performance, pricing, store location and layout, and much more.
Keeping track of sales per square foot over time might be extremely useful for a small business owner. A series of declines is a clear signal that something is wrong, and a problem may need to be identified and rectified. Steadily climbing numbers are a sign that the business is strong and getting stronger.