When one square is better than another
How all square footage is not created equal
Some of the readers of this column are old enough to remember when a ‘square’ described someone who did not fit in with the crowd. It was meant to be a derogatory description.
With some garden centers today, there are many ‘squares’ that do not fit in with what the garden center is attempting to do, or should be doing. However, these squares are not employees or customers; instead they are many of the square feet of space that the garden center occupies.
After inventory and personnel, the square footage your business occupies is likely to be the largest operating expense you have. Many garden centers use a measurement of acres instead of square footage, but within all of that acreage there is square footage.
Experience has shown that the larger amount of anything a business has, the less that business owner pays close attention to it. Before the great recession, many garden centers were going gang busters with the way that people were buying and selling residential properties.
Because of that rapidly increasing gross sales, many garden centers did not pay attention to controlling their operating expenses. After all, why bother with the details when the ‘ship’ is cruising and picking up speed?
One prominent garden center owner from the northwest commented to this writer after we were all feeling the halting of sales beginning in 2007, ‘What were we thinking? Why weren’t any of us paying attention to controlling our business instead of just being along for the ride?’
Truly a valid observation; one in which there is value only if a lesson is learned and applied to business today.
Paying attention to details is always important and therefore, regardless of how many acres your garden center may occupy, today we are going to take a look at square footage.
While the initial calculation frequently used is to determine your sales per square foot (annual gross sales divided by total square footage occupied), there is more to consider than just looking at your garden center as a whole.
Every category and area of products should be evaluated. This need was very evident by a recent garden center tour this writer participated in. You could see the traditional waste; the more square footage the garden center occupied, the less attention was paid to determining how any area was doing. One garden center had as much wasted area as another garden center had in total square footage! Yet, even the smallest garden center also had a lot of wasted territory.
In addition to wasted areas, there are several other ways to consider how well your square footage is producing. As an example, a garden center recently visited had a large selection of ceramic pots. There was a variety of sizes, shapes and colors. It took quite a lot of space to show all of the options to the customer.
Though it would be easy to calculate the sales per square foot for the ceramic pots we see in the front of this garden center, there is more to be considered. Because the pots are imported, a garden center is going to have to deal with the issue of freight and minimum order size.
Wandering through this garden center, there was an area behind the main building where the rest of the order of pots was stored. Calculating the sales per square foot, the storage area for the pots would have to also be included to determine how well ceramic pots were doing. What may initially appear as a great sales per square foot may not actually be so.
Logic would also say that everything should be more than just the sales per square foot for the business. Every department and category should be evaluated. Elsewise, how would you know what part of your business should be grown and which should be diminished?
Just like the consideration being given for the true total space the ceramic pots occupy, there are other considerations that should be given to the square footage. We should consider the gross profit, in dollars and as a percentage that each square is producing. Perhaps we could create a calculation for any part of the garden center that would be gross sales divided by square footage (giving sales per square foot) and multiplying that by either of the gross profit numbers just mentioned.
We can go a step further and while we are looking at the margin and sales per square foot, we would want to consider the dollars invested within that square footage.
While the example of the ceramic pots spoke to the size of the product and the quantity being ordered, we should also consider the dollar investment. We would look very differently at our ceramic pots and what they were producing for our garden center if the pots were selling for $700 or if they were selling for $125. If you ordered 200 of either of these two types of pots, there would definitely be a sizable difference in the amount of dollar investment your garden center was making as well as the gross sales dollars being produced.
There is also the consideration for the rate at which you are selling the items within our sample area. The math is rather simple when we consider two items selling for the same price and with the same cost; when you are selling one twice as fast as the other, definitely the sales per square foot is different. However, if one item is twice the price of the other, the math is a bit more complicated. Think about trays of annuals; the space they occupy and maintenance they require as compared to three gallon containers of plant material.
Can you get to the point where you are over analyzing your business? Absolutely! And, this is especially true if you are not learning from your calculations and making decisions about what is sold in your garden center; how many you order; and what to do when you are out of space.
Whether you are struggling to squeeze everything into a very limited space or if you have acres to spare, there should be the time taken to analyze just what every square foot is doing for you.
While all the square footage may be equal in size, definitely not all squares are performing alike. Before you get lost in all of the percentages, remember that it is dollars that pay the bills; not percentages.
If you have an item that costs $800, sells for $1,000 and you sell three a year you have made $600 in gross profit over the course of a year. Take an item that costs $5 and sells for $11 with your business selling 100 over that same year; you have made the same $600.
Take a third item that costs only seventy five cents and sells for a dollar; your business sells 2,400 of it over the course of a year. You have again made the same $600 in gross profit.
When it comes to paying the bills, all three have produced $600. All three are necessary in your garden center. You cannot apply one formula to everything. The same is true for the square footage. However, when it is time to look for ways to increase your sales, you need to be able to determine which of the square footage of your garden center is producing more for you than others.
This is because one square can definitely be better than another.