A Tale of Two Metrics

Ray Hartjen
Ray Hartjen
Guest Contributor

Sales per square foot is a traditional and valued metric in retail, but it’s ill suited for minding the store.

A tale of two metrics cover photo

Sales per Square Foot is the simple average revenue a store creates for every square foot of sales space, and in the retail world, it has been a popular metric for decades. It’s used by financiers and analysts to measure the efficiency of store operations and management in creating sales within the amount of selling space made available—the higher the sales per square foot, the better job management is doing.

Only, Sales per Square Foot is almost meaningless for managers tactically running a retailer’s business.

Sales per Square Foot metrics are of most interest to high-level executives—those in the C-suite—who create and develop broad, long-term strategies involving real estate, store design, and finance. To those ends, Sales per Square Foot is usually only calculated on an annual basis. It’s an easy-to-communicate and understand metric, and it generates interest in earnings calls.

On the front lines, other metrics generate more interest for store managers and retail operations professionals. The baseline metric for most stores is Traffic.

Traffic counts sometime get bad raps. First, accuracy can be a problem, as some systems can’t distinguish children from adults, or employees from customers. Secondly, Traffic is rarely an end-all metric. Mike Moriarty, a partner in AT Kearney’s Consumer Industries and Retail practice, was recently quoted in Sourcing Journal Online, “Traffic is nice if you want busy, but Harrod’s knows you only really need 100 shoppers a day, not the other 123,456,789 people who traipse through the place and ruin the carpet.”

It’s a cute quip and as a sound bite, it’s pure gold. But at the same time, it downplays the value that genuine, accurate traffic counts contribute as one data stream.

Traffic can’t alone measure the effectiveness of demand creation efforts, but some well-placed math can show retailers strong correlations over a myriad of relevant variables. More over, as my colleague Shelley E. Kohan pointed out in her post earlier this summer, “Expanding the Scope of Metrics,” Traffic is foundational for meaningful metrics like Conversion and Sales Yield (Sales per Shopper), key measurements that help managers make daily decisions on the floor from tailoring merchandising displays to allocating staffing and refining associate training.

With metrics, it’s important to remember there’re different strokes for different folks, with different measurements critical for different functions, much like financial accounting and managerial accounting serve different masters. Today’s “big data” age allows retailers to inexpensively collect, synthesize, analyze and report almost unbelievable amounts of data from an equally almost unbelievable number of data streams. Paramount is to get the right information in front of the right people at the right time.

Sometimes, the right data is Sales per Square Foot, and it certainly makes for a nice headline. But, not to be outshined, other instances call for Traffic. As Chitra Balasubramanian, RetailNext’s Head of Business Analytics, points out in the same Sourcing Journal Online article, “Traffic equals opportunity. Retailers should take advantage of store visits with loyalty programs, heightened customer service, and a great in-store experience to create a long-lasting relationship with that customer to ensure repeat visits.”

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