Business SMART:

Sales per Square Foot is a Partnership
 

By: Dennis A. Conforto
Chairman & CEO of A-Z Media Group, Inc.

Maintaining high sales per square foot requires great partnerships between retailers and manufacturers. Without great partnerships in place it becomes impossible for a retailer to maintain and sustain high sales per square foot. These kinds of partnerships allow retailers to seek more in-store support from manufacturers, and allows manufacturers to have more control over managing their brand within the store.

A common mistake made by many retailers is having retail stores that are just too big or too small for the given marketplace they are in. Too small, and your selection is not large enough to maintain acceptable sales per square foot. Too large, and your market can’t support enough sales to justify the retail space.

This common mistake can be tempered through true partnerships with manufacturers who know or should know how much square footage they need to be successful.

If your goal is to make money in retail then measuring sales per square foot is a key to helping you managing your business to a profit. The reason for this is if you create a store that is too big then you will follow Murphy’s Law of retail space, which simply states, if you have space you will fill it. If the store is too large then you will carry too much inventory and selection. Too much selection can cause confusion for the consumer and not increase sales but slow sales down or balance sales at best.

Of course it is possible to have a store that is too small for its marketplace and then you run into the problem of not having enough selection, which can impact sales in the long term. Given the choice between lots of space or less space I would rather have too little space than too much. It is always better to start with less space than more and grow your store to match your increased client base.

But how much space you occupy is just one part of the battle for retail success. The three rules of real estate purchasing, “location, location, location,” also compromise the great rules of retail leasing. If I were opening a store today I would think in terms of where the most craft traffic is within my market area. Contrary to what most in the market place would say, I would open a store and share the parking lot of a Michaels, Joanne’s, Hobby Lobby, or even a Wal-Mart. This is not unlike the thinking of competing car dealerships, restaurants and gas stations; being by each other to create a destination shopping area by category. Destination shopping has proven time and time again that it is the best model for the retailers and the consumers.

It may be true that the larger retailers sell for less, but they can’t give better service or have greater selection or even the same selection as your store. You are faster and can change on a dime if you’re a good retailer. In truth, you can match the pricing of the larger retailers on selection of key products. By matching some prices you can appear as “the low price leader” within the consumer’s mind. In retail it’s not reality that matters, it’s perception that counts, because perception is reality. What you want for your retail store more than anything is traffic, and lots of it. You can get shared traffic by being in the same center and sharing the same parking lot of a larger retailer who can drive lots of traffic to your store just by you being located there.

These larger operations perform studies that show them where to build a store based on demographics and traffic patterns. They have more information than you do, so take advantage of it. Of course, the rent is going to be higher because it is a prime location, but the rent is higher for them as well. They did the study to prove to themselves the market and traffic would be there. If the traffic is there for them, it will be there for you.

You will be able to feed off of their advertising, but you will also be able to feed off their weakness, which is they will not pay the price to be as successful as you in your one single scrapbooking store. As a result, they simply cannot be as good as you. Remember, that is just one of many categories they have to manage. You can out think them, out run them and at the end of the day you can out sell them. Let them bring cars to the parking lot, all you have to do is pick them off when they get to the parking lot with great signage and great window displays, great values and great service.

The scrapbooking industry is being taught that retailing is a price war of the big retailers vs. the small independents and nothing could be further from the truth. Retailing is about who is the better merchandisers and better promoters. You can never get the quantity discounts of a 1,000-store chain, not even with a buying group. The cost savings for a manufacturer of packing and shipping it all to one retailer’s distribution center is just too great. It is the advantage of the large chains so there is no need to fight it because you will never win; it’s the wrong battle for a small retailer to fight. The right battles are: selection, service, value and clever promotions, and here you can clearly win.

In the end you will be better, faster and have a real business model that can grow and expand. There is no fighting the big retailer, so don’t fight them, rather feed off of them and win. Not only should you partner with your manufacturers but you might want to ever consider a partnership with retailers that compete with you. By being in the same parking lot as the large retailer you could get a percentage of their clients who will shop them and you. By converting some of their consumers, you will grow faster. That is what being retail SMART is all about.