We've now covered all the basic merchandising calculations, planning and open-to-buy. Last time, we covered the ways our merchandise selections, location and promotions relate to the flow of customers in stores and how and when shoppers convert to buyers.
In so doing, we see that the real investment and the biggest contributor to our overall profitability is our inventory: We're merchants after all, and selling things is what we do. Selling things pays for everything…even that upcoming expedition you're hoping to take to Mount Plentiful Dreams.
The following discussion on staff hours and retail floor space efficiency may seem to veer slightly afield of pure merchandising. But once again, it's the product that is our biggest investment (and in many cases, our only real asset) and we want it to work harder than everyone.
Sales per square foot of selling space is the standard metric we use in retail to evaluate the productivity of store space. We pay increasingly staggering amounts in rent to present merchandise to customers and that space had better be as efficient as possible. If you own your building, congratulations! The following may not apply as intimately. For the rest, read on!
Typically, when doing these calculations, we exclude the receiving area, offices, restrooms, etc. and focus only on selling space -- unless, of course, you've somehow managed to turn your restrooms into selling space. Wait, let's not go there.
We would all love to have more space to move about in the store, and customers appreciate elbow room when shopping. But there must be a break point of efficiency and the following chart gives us a view into that. We'll use the same four stores as in the previous article on Traffic and Conversion:
This is pretty simple stuff and most of us are familiar with these calculations. If you gasp at the higher annual figures, rest assured they exist: We've taken our data from actual examples.
At a glance, it would appear Store 1 is a problem. Given our ability to achieve higher values in the other locations, we should be able to improve.
It's our biggest store, and sometimes it's the right thing to do to reduce the size and the related rent to increase efficiency. But this can also be misleading. What if Store 1 has a 15-year-old lease at a ridiculously low rate that's locked in? How do we factor that windfall into the equation? Let us offer you a metric we've never seen used. A simple creation of our limited imaginations, but one that suggests a way to compare stores with varying performance and rent costs:
In this view, we've factored rent per square foot against sales per square foot to reveal a percentage. Store 1 may still be too large, and it may take more staff than it should to cover it, but this dynamic calculation shows us that we may indeed be able to afford the location. It also shows us we are paying rather dearly for Store 2 with the lofty sales per square foot, and we should really consider the future of Store 4.
Sales per employee hour
The final computations we want to cover involve the efficiency of our staffing. To be sure, your P&L tells your wages as a percent to net sales, ultimately the critical number. But what goes into that figure? What if you have very tenured staff at higher wages who are really producing sales for you?
Let's take a look:
In this analysis, we're looking at sales, hours worked, and FTE's (full-time equivalents: total the hours worked and divide by the number of hours a full-time person would work in a month) and then we factor them against sales.
As we can see, Store 2 and Store 3 are not only our top selling stores, but the staff in those stores is producing at the highest levels for the time spent.
Have you got a headache yet?
The trick with all these numbers and calculations is to get into the discipline of collecting the information, reviewing your reports monthly, watching how things change, making adjustments and seeing the effects. This is retail science and we've got to learn to love our numbers! They won't take us by the hand and walk us down the platinum-paved pathway to profitability: We still need to make the decisions, and sometimes we'll ignore the numbers and go with our gut. But without the numbers, we're on an entirely different road and it's very dark out there.
That wraps up the 10-part Retail Merchandising Training series produced by SNEWS® -- paid SNEWS® subscribers have unlimited and full access to the entire series. We trust you have found the series valuable to read, and we hope, equally as valuable to use. If you have other topics you would like to see the SNEWS® team address on the behalf of retailers, reps, manufacturers or any other industry segment, please don't hesitate to let us know. For those of you who would like Retail Buying Tool templates we've designed for retailer use, simply send an email to us at email@example.com and ask…they are free to paid SNEWS® subscribers. As always, happy retailing!
Have a question that is not answered here, or an observation, or even a better way of going about the business of retail merchandising planning than we have offered up? Then scroll down and chime in below to enter a chat open only to SNEWS® subscribers.
This article is part 10 of a 10-part Retail Merchandising Training series produced by SNEWS® and authored by Michael Hodgson and Geoff O'Keeffe. SNEWS® president Michael Hodgson, in a former life, was a manager for five years with Adventure 16 and the general manager overseeing a team of buyers and store managers for three years at Western Mountaineering. In those roles, he learned, sometimes the hard way, how to make a living and make a profit (or not) in the world of specialty retail. Geoff O'Keeffe has held retail senior management positions at Granite Stairway Mountaineering, Adventure 16, Patagonia and PlanetOutdoors.com, as well as having served as president of Lowe Alpine Systems USA and Mountainsmith. He is currently the vice president of operations at American Recreation Products, which he is managing to fit in while working on new projects at his home in the mountains above Boulder, Colo., where he is a fourth-generation resident.