Sales KPIs In Retail Part 2

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Sales per square foot or metre

Space is a valuable and costly asset.  Retailers use a number of methods to help increase returns on their selling space.  These are usually measured as sales per square foot /metre or profit per square foot / metre. 

Sales per square foot / metre is calculated as:

Gross Sales (money) / Square Feet or Metre of Selling Space

There are 4 main ways that a retailer can improve returns on the total space their stores occupies:

  1. Allocate more space to selling (and stock more lines)
  2. Stock rooms might be removed.  An extra floor might, if possible, be added to the building (sometimes a mezzanine floor), though sales per square foot / metre typically fall away the further you get from the entry level floors (where customers make impulse purchases).
  3. Sell more from the existing space.  Planogram and space management techniques help to lay out a store to maximize sales - more space can be allocated to better selling lines.  Related merchandise next to best sellers increases impulse buying, e.g. scarves with dresses or pasta sauces alongside pasta.
  4. Sell more profitable items.  The aim is to maximize the profitability of the whole store, not just a particular department.  A department may be achieving a high productivity ratio but failing to maximize sales. This may be because it is too small and can hold only a limited assortment.  Or, a department might be too large for the profit it makes.  Reducing space could give space for another, maybe more profitable department and improve the store's overall profitability.  Decisions based on selling space returns are usually made by the merchants and the store operations department.

Sales per linear foot or metre

Sometimes it is more useful to measure profitability on a sales per linear foot or linear metre basis, rather than by square feet.  This is true in food and drug retailers, where most merchandise is displayed on multiple shelves on long gondolas.  Since the shelves have around the same depth, only the length, or linear dimension is relevant.

Sales per linear foot is calculated as:

Gross Sales (money) / Linear Foot

Advantages of linear feet for both suppliers and retailers are:

  • They represent the space seen by the customer
  • They are more meaningful for categories like food and cosmetics.  Food, because of the nature of supermarket gondolas and cosmetics because a lot of product can be displayed in a small area.
  • Products that perform well usually do so consistently, whether linear, square or cubic feet measures are used.  For example, cereals, coffee, sugar and commercial bread all rank among the top five edible products in sales using any of the three measures.

Most food and drug retailers use computerized space planogram systems to help them maximize the sales per linear foot / metre of their stores.

 

Sell through percent

Another important metric in seasonal retailing is sell-through.  This is usually expressed as a percentage. The calculation is cumulative sales to date expressed as a percentage of the quantity purchased (or planned in a category management environment).  Mostly it is done in money but it can be measured in units.  Sell through can be measured for an item or for higher levels in the merchandise hierarchy, as long as all the constituent products are comparable.

Graph Showing The Stages of Product Sell Through

In this example, 70% is the target full price sell through, i.e. the point in time where 70% of the purchase will have been sold, hopefully at full price.  Full price sell through targets vary by retail segment.

Season sell through is the percentage of the buy sold by the season end, irrespective of how many markdowns have been taken.  So, 70% say, was sold at full price and a further 15% by many at discounted prices.

In a seasonal environment, 100% sell through is planned to be achieved after the season end (ideally within 6 weeks of season end) to maximize sales potential in the season, minimizing range fragmentation effects as far as is reasonable/affordable.


Next time we will look at inventory KPIs.


If you’d like to know more about these KPIs and how to calculate and interpret them check out our Analyzing Retail KPIs e-learning course.


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Posted by Brian Hume
10th October 2018

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