Definition of sales per square foot


What are sales per square foot?

The dollar value of sales per square foot has been a measure of success in the traditional retail industry for many years. It is simply the average income earned for each square foot of sales space.

In the era of “omnichannel” marketing, this number may be less relevant, at least for large retail companies. However, it can still be a critical measure of success for an independent local business.

Key takeaways

  • Sales per square foot are a key measure of success in physical retail.
  • Managers and analysts see a higher number as evidence of greater efficiency.
  • The measure is less and less relevant in today’s omnichannel marketing environment.

Understanding sales per square foot

Companies and retail stock analysts use the measure of sales per square foot to measure the efficiency of running a store in creating revenue, given the amount of sales space available to them. It is tracked over time simply by adding the sales revenue over a period of time and dividing it by the total square feet of available retail space.

There is no absolute good or bad number. The higher the sales per square foot, the better the store management’s job in selecting, displaying, and marketing the store’s products.

Studies show that this number is falling. As more stores increase their online presence, traditional brick and mortar locations are sure to feel the rush. The impact of issues like the 2020 economic crisis also affects retail sales per square foot. According to Colliers International, sales per square foot in 2020 were $ 338.3, a decrease from the 2019 figure of $ 382.9. This is sure to affect the physical retail space, as analysts predict that up to 100,000 retail stores could close by 2025.

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 about $ 5,500 per square foot, and Tiffany & Co. (TIF) generates approximately $ 3,000 per square foot. Both companies sell small products with high dollar value in smaller stores. In contrast, sales per square foot for Walmart (WMT) stores are roughly $ 400 per square foot, while Target (TGT) is around $ 300 per square foot.

Analysts generally compare a retailer’s sales per square foot to its direct competitors in comparable retail settings. A retail analyst looking at sales per square foot might compare Target unfavorably to Walmart, but probably wouldn’t compare Walmart unfavorably to Tiffany. They are in the same business but certainly not in the same sector.

Are sales per square foot still important?

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 retail buzzword that describes a hybrid approach to brick-and-mortar stores and online venues. For example, Apple Stores may be as much about marketing, customer service, and imaging as it is about direct sales volume.

Measuring success as a small business owner

On the other hand, sales per square foot can mean the difference between success and failure for a local small business, with or without a website. The number depends on many factors, including product selection and display, staff performance, pricing, store location and layout, and much more.

Tracking sales per square foot over time can be extremely helpful for a small business owner. A series of descents is a clear sign that something is wrong and a problem may need to be identified and rectified. The ever-increasing numbers are a sign that the business is strong and getting stronger.

www.investopedia.com

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Mark Holland

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