Post No.03 in the weekly newsletter series:
‘52 Steps to the Perfect Shop!’
You too can have ‘The Perfect Shop’ by this time next year!
We’ve talked about options/sqm as being the most important quantitative parameter when we consider the task of creating a commercially successful shop.
Will you have enough density of options to make enough profit? Will you manage the density so that customers move around, see and touch the product and then convert into buying it?
So, we understand the principle, but what should that options/sqm number actually be for your shop?
The answer comes, as most things do in the retail business, from ‘looking-in and looking-out.’
‘Looking-in’ means we consider everything that we can about our own business. The data we have across every area, our actual and physical experiences, the feedback we’ve received, and even today, a degree of our ‘gut feeling.’ But a ‘gut-feeling’ based on facts!
‘Looking-out’ means to benchmark ourselves against our competitors and best practice. Benchmarking is vastly underestimated as a tool! Some people seem to view it as a ‘kind of cheating.’ But the fact is, there is not much new in retail, so there is no need to re-invent the wheel every time.
Just look at who is similar to you, who is doing well and making money, certainly quantitively. Do something similar and that’s a very good starting point.
So when we look-in to find our options/sqm density we must first consider the money we need to make to be financially viable as a shop. What are all of our costs, for the whole shop but also again per sqm.
We need to consider ongoing permanent costs related to rents and rates and utilities. You may also have interest and loans to cover. There is the cost of staff, usually high but possibly the best value you will get from your money. Finally the cost of your product, how much you paid for it, your buying or production margin. You will need to dive into the category and option detail here.
When you have the costs in £s per day, week and month, for your shop and for sqms, then you can project your anticipated sales against it. A word of advice, be realistic.
Be realistic about the selling price & margins you can achieve, the footfall, conversion rates, and rates of sale you can achieve. Ideally, have a good, better and best scenario, where you break even in each case.
And so, one of the essential figures falling from the bottom of this process will be the average options/sqm you need. If you sell across many different departments and product categories then you are going to need to look at each of those individually.
But also, please ‘look-out’ at your closest competitors. The ones who are successful. Visit their shops and make some notes. And estimate the densities/sqm they are working with. This is an excellent process to cross-check your internal calculations against.
When ‘looking-in’ and when ‘looking-out’ become aware of the things that will potentially make your options/sqm density higher or lower, compared to the market average, and particularly compared to best practice.
Clearly the price point and % margin are key. The size of the store, its location and resulting costs/sqm, rent etc. will define what options/sqm is needed. Large store sizes generally have a lower density if they are selling more choice of the same thing, but not so, if they are selling alternative propositions.
Footfall will be linked to costs and rents, but of course offers more possibilities to sell. What densities will work best to show what we have and to achieve a viable conversion rate? This brings us back to our previous discussion on ‘rate of sale.’
This precious ‘rate of sale’ will of course be effected by the price point, the exclusivity of the product, the cost of good customer service, the shop environment. And for sure it will be linked to footfall & conversion.
High footfall usually delivers a lower conversion, and vice versa. Achieve best practice in both and you will be doing very well.
And one final thought. In our omni-channel world, shops are not the only way to make profit for a business. Define a shop’s strategy. To be a cash-cow or a promotional flagship for the total business? This will effect how much profit you actually need to make, and want to make, from each shop!
So, hopefully you can see how everything effects everything else. It has to makes sense, and have consistent logic. That consistent logic is your ‘brand proposition’ to the customer.
With such complexity hopefully you also see the importance of looking-in and looking-out to set your product densities, to cover your costs, and todrive your shop profitability.
’52 Steps to the Perfect Shop!’
For everyone looking to improve their physical shops, or thinking of opening their first pop-up or permanent shop.
The weekly newsletters, and the 10 content modules they feature, have been created from my experiences of opening hundreds of shops, of all different sizes, situated across the world, selling just about everything there is to sell.
Every week we explore the sequential process of physical shop development to help you deliver your perfect shop.
Missed any of the previous ’52 Steps’ then just click here to catch up…