It helps in determining the efficiency of the management of the various retail stores of the firm in terms of revenue and space available. Higher sales per square foot represents better and efficient is the sales team of that store in displaying, selling and marketing the products.
This is one of the most important metric used by the analysts to help the business in its operations and other decision makings. It helps in determining the appropriate rent fees, inventory purchase planning, return on investment for the firm.
So in other words, sales per square foot is a standard and sometimes primary unit of a store’s success.
Sales per square foot = Total net sales/ Square feet of the selling space
Suppose, Shoppers Stop has many stores in Bombay for example. Sales in all the store might not be the same. So, suppose due to financial constraints, company wants to close 2 of its shops in Bombay. To do this, company has to choose the store that is least profitable for them. One of the metrics that they would look at, while taking the decision would be sales/square feet.