Optimizing Selling Space with GMROI
Occupancy costs are a significant share of retailers’ non-merchandise expenses. Costs need to be managed carefully, but with things like selling space asset yield or asset productivity is also critical. For selling space this is measured as sales or gross margin per square foot/metre.
When retailers are looking at space productivity, department A might have lower sales or gross margin per square foot compared to other departments. Sometimes this is for good reasons – you need this department to be competitive with other retailers in the town, for example. If that department has a long tail of slow moving items, these metrics may not be enough. Departments can have an acceptable gross margin, but at the cost of too much inventory to support the sales.
A simple test is to measure sales or gross margin share by department compared to inventory share by department. Rank departments by largest sales or margin at the top of the list. Then look for departments where the inventory share is out of line. This analysis can be the pointer to those departments and stores with too much and too little inventory.
When you consider reducing some departments and giving more space to others, identify the lines you might give up in department A and what you might replace them with in department B. Then calculate the gross margin return on inventory investment (GMROI) to factor in the inventory issue.
GMROI says for example, that department A makes 5 dollars of margin for every dollar invested in inventory. It might also say that department B makes 3 dollars for every dollar invested in inventory. Depending on how the numbers work out, this may confirm your decision or cause you to rethink your choices. Either way, you will have a more robust analysis than just using the simple approach.
You can learn about the many factors that impact these kinds of decision or upskill the teams that do this for you using our e-learning selling space optimization training to insure that your people are doing the best job possible. Contact us if you would like to know more.-
Posted by Brian Hume
27th June 2025
