The health of a retail store can be measured by examining its sales per square foot. It is the one metric that can be used year over year to determine the viability of the business. For example, since your expenses change every year (get higher) and your margins stay the same, your sales have to increase per square foot to maintain a positive cash flow for your business.
The average sales per square foot for your chosen type of retail store is also needed to write a business plan. This data not only measures retail sales performance within a business, it also allows retailers to benchmark their sales against competing retail businesses.
In truth, the higher your dollar per square foot calculation, the better. Rent is based on square footage. The more revenue you can generate per square foot, the more profitable you will be. Benchmarking is a key way to determine if your results are good or great. However, average sales per square foot data for your particular niche can prove difficult to locate. Here are a few places to find the average sales per square foot.
1. Trade Analysts
Many analysts study and research the retail industry as a way to advise investors and venture capital firms. These analysts use trade data from other organizations as well. For example, the Monthly Mall Merchandise Index, maintained by the International Council of Shopping Centers (ICSC), reported sales per square foot in sporting goods stores and bicycle shops of $20 for July 2006. This information was obtained from the National Sporting Goods Association, a trade organization for retailers (and wholesalers) in the sporting goods industry. However, this data is usually behind a pay wall.
2. Public Library
Instead of shelling out big bucks for industry almanacs and association studies that you may only use once, take a trip to the local library and browse the reference desk. Many major business publications are made available for your retail research. This is certainly the most difficult route to take since the data is not organized well and you may have to piece together data points of multiple sources to get your answer; but it is free.
3. Annual Reports
Review the annual reports of publicly traded companies for the data. Some businesses post their annual reports on website or just contact them for a copy. While you won't necessarily find their average sales per square foot detailed in the report, it may give enough clues to reach an estimate.
For example, if Hudson Shoes reports it had $250,000 in sales last year and the store is around 8,000 square feet then you can roughly estimate the sales per square feet to be about $31.
4. U.S. Census Bureau
The United States Census Bureau data isn't just a count of households in your community. The Retail Trade Economic Data features sales by industry, annual survey results, as well as shopping centers retail sales per square foot by state. Often times, this data is a few years behind, but it is a good starting point.
5. Trade Associations
One of the best sources is retail trade associations. No matter your industry, there is an association you can join that can give you data specific to your retail store type. For example, the National Shoe Retailers Association publishes reports to its members of the key performance metrics of its member stores. When I had my shoe stores, this was a tremendous asset. After all, I didn't know if my margins and sales were good or great until I compared them to similar stores.
There are even state retail organizations you can check with to help. Here is a list of all of them for your reference.
6. Similar Businesses
Asking your local competitor how much in sales he's doing per square foot is probably useless. However, don't rule out asking a similar business in another city or even another state. That retailer may not feel threatened and may be willing to provide you the necessary information. Either way, it won't hurt to ask.
Once you learn the sales per square footage for your retail industry, don't be surprised if your business does more or less in sales. Factors such as location, competition, store layout, and level of inventory may greatly influence your store's sales results. The main goal is to generate more sales from existing space and constantly improve sales per square foot. Since you have a lease for your store and your expenses continue to rise each year, raising your sales per square foot is the only way to make it work.