l measure for assessing sales productivity is net annual store sales divided by total productive floor area (excluding store rooms etc.), alternatively known as sales per square metre (sales PSM). Removing variability in sales between stores of different sizes helps retailers compare their sales results between stores and against industry averages. Sales PSM effectively measures how efficient your store is at generating revenue. Sales productivity is important because it reduces your store’s fixed costs (rent, wages, store costs) as a proportion of total revenue, increasing store profitability. Sales productivity is influenced by a wide range of factors impacting the retailer instore offering. For example, product selection and mix, product placement, pricing, inventory levels, brand engagement, instore customer service, and promotions. Experimenting with each of these levers can help drive sales. Sales productivity can also be impacted by seasonal retail events and discounting strategies. When measuring like for like annual sales activity, care needs to be taken to ensure that key events are factored in to make the comparison meaningful. Sometimes, if sales PSM is below an acceptable benchmark, your store may be considered too large for its given location. Not only does this impact your top line, it affects your bottom line, as you may be paying rent for floor space that isn’t generating sales. Conversely, sales PSM above benchmark can signal unmet demand and potential lost sales. This could mean an opportunity for an additional site nearby to capture the extra demand. It is important to note that the level of sales for your store depends on a number of factors including store location and product category. The graphic below provides an example of the average sales level and store size of a specialty women’s retailer, which differs considerably based on store location. Source: Urbis, December 2014; Ferrier Hodgson estimates Based on average turnover Super-regional – Top 10 regional centres CBD – Central Business District Other regional – Excludes top 10 regional centres Sub-regional – One or more discount department stores, supermarket, specialty shops Supermarket – Supermarket based, some specialty shops As a general rule, Super regional and CBD based stores generate significantly higher sales per square metre than other locations, mainly driven by higher foot traffic. In terms of product categories, electrical goods retailers and jewellers generate the highest sales PSM while department stores tend to generate the lowest sales PSM. Source: Urbis, December 2014; Ferrier Hodgson estimates Based on average turnover in Super-regional centre Urbis provides detailed average benchmarks on a sales PSM basis by category for a fee. Store sales productivity should be measured regularly on a rolling 12 month basis (to remove seasonality) and compared to competitors and industry benchmarks to provide feedback on the success of your product range and mix. Retailers with a portfolio of stores should also compare sales productivity between stores to highlight underperforming stores within the brand that may not be utilising their store space effectively or may simply be the wrong size for their given location. The important thing to remember about published sales per square metre benchmarks is that they represent averages i.e. published productivity benchmarks are neither the peak or floor in store productivity performance. We frequently see best practice retailers achieving up to 50 per cent above the published averages and conversely struggling retailers delivering sales productivity results up to 50 per cent below. The key is to make sure that when you are benchmarking your store performance you: Calculate sales productivity correctly (i.e. only include selling space on the floor, not reserves) Include GST in net sales figures Make sure your internal and external benchmarks are directly or reasonably comparable e.g. mall vs mall, super centre vs super centre, strip vs strip. In my next article I will take a look at gross margin benchmarking for retailers. James Stewart is a partner and retail practice leader of Ferrier Hodgson and Azurium.