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Measurement of sales is a critical component of monitoring how a specialty store is performing. Tracking the total sales every day and every month is not enough information for you to conduct an adequate analysis of how good a job you are doing. It is, however, the first step in compiling the data needed at the end of a fiscal year to make a measurement of sales performance versus expenses.

As part of this article, an excel spreadsheet (Addendum 1) has been included as an example of how to track sales daily and month-to-date versus a sales forecast. The column headings are self explanatory. Planning a forecast and a growth formula will be discussed in a future article.

The need to identify not only the date, but the day of the week is important so that when laying out the subsequent year, you adjust the prior year’s sales to begin on the same day of the week as the current year’s sales. In the example shown, this month’s sales started on a Saturday. Next year, they will start on a Sunday. This means Saturday’s actual sales from this year for comparative purposes will be moved to the end of next year’s report which will be the day on which the month ends. By doing this, you are comparing apples to apples. This change will also impact the month-to-date cumulative sales.

The one piece of information being tracked that will not move on this report from year to year is the weather. The assumption here is that the weather will have some pattern of similarity in terms of temperature and rain or snowfall from year to year, depending on where in the country the store is located. Inclement weather may appear at anytime of any given month, but hopefully, the amount of inclement weather impacting sales will not exceed the amount of inclement weather from the prior year. If you contribute to the Farmer’s Almanac or have a meteorologist background, then altering these facts may be possible. Unfortunately for most of us, all we can do about the weather is deal with it.

The report takes daily sales this year, and compares them against last year. It calculates the plus or minus difference and provides a variance in both dollars and percentage. Both numbers are important factors in analyzing sales. A strong percentage growth is good when it performs consistently throughout the calendar year but adds little value to the total when it is up 30 percent or 40 percent in the first five months of the year and only 4 or 5 percent in the last three months of the year when 40 percent of the store’s annual sales are likely to occur. The lesson to be learned is to read the numbers and interpret what is happening factually not emotionally. This same process is used in the month-to-date comparisons except it is done on a cumulative basis.

The monthly sales plan should be posted at the beginning of the month on the employee bulletin board and should be updated daily throughout the month. The store owner takes this task on or the responsibility is delegated to the store manager or appropriate sales associate, who is responsible for the store on any given day. Every employee should know how the store is doing for the month against the plan at the beginning of every day when they start their shift. Collectively, everyone should be working toward the monthly sales goal; with the understanding that their earnings are dependent on the performance of daily, monthly and annual sales. One of the ways to get your staff committed to these goals is to create an employee sales incentive plan that rewards employees in the form of a cash bonus for exceeding the goals of the store.

At the end of the month, the total monthly sales are posted to a month-to-date, year-to-date Sales Performance Analysis (Addendum 2) excel spreadsheet. This report is a consolidation of monthly performance to the annual performance level. The key number needed at the end of the year to make the most important summary analysis of performance will be the dollar sales per square foot.

Dollar sales per square foot are determined by taking annual net sales and dividing them by the GLA (gross leaseable area) of the store. GLA is equal to the total square footage of retail space, plus storage space, plus office space. In the first year of operation, the number needs to be $250.00 to $300.00 per square foot if you are planning on making a profit. Utilizing the profit-and-loss statement for the first year of business from the business plan will guide you in determining the number that applies to the store’s performance needs. The formula for what needs to be achieved in each of the next four years of the business plan will be discussed in an upcoming segment of this column about sales forecasting and growth.

So, how long, or for how many years, should this analysis occur? It should occur in the first year and every year thereafter in the life of the business. The success of the store cannot be measured without knowing this sales performance number.

After the second full year of business, dollar sales per GLA also need to be analyzed by retail square footage. To do this, the same annual net sales are divided by the total retail square footage. This yields sales productivity by selling area. The results will be considerably higher than the GLA retail sales number, but it is not the true measurement of the overall store sales performance. The latter is strictly measured by total dollars per square foot based on GLA. So why bother with this subsequent analysis? Because now it is time to analyze how well the store is doing on a classification basis. A tool the merchandise manager/buyer needs to do their job efficiently

The selling area square footage is then mapped into the area assigned to each classification of merchandise within the store. It is essential that all the retail square footage be assigned to a classification including the appropriate aisle space and a portion of the check-out area square footage.

This map of the store’s square footage now allows the calculation of square footage sales by classification. To do this, divide the sales of the classification by the square footage assigned to the classification. The next step is to rank classification sales by square footage. Then compare sales by square foot to inventory levels by classification. This will identify whether or not inadequate, overstock or the appropriate inventory position is in place. Then compare the results to overall GLA sales per square foot. From this comparison, a determination may be made of the contribution each classification of merchandise is making to the overall performance of the store. Poor classification performance will indicate the assortment needs to be evaluated. The classification may be inadequately assorted, improperly stocked, occupy too much space in the store (meaning some of the space should be reassigned to expanding assortments of better-performing classifications), or — in the worst case scenario — is a business that is inappropriate for the store.

Why all this sales analysis?
With this information, you can discover the opportunities available to improve overall sales, spot fast-track classifications which may be impacted by industry trends, and expand or decrease square footage sales areas based on the productivity of the classification.

It is unlikely that sensible buying decisions can be made without this information. Thinking it is not needed or operating the business without this data means sales are probably being lost without your knowledge. The store is likely underperforming and, worse yet, if it continues down this path, it may put the success of the business in jeopardy.

Believing in what may be learned from historical analysis is essential to having a winning formula. There is no time to be complacent in any business if you want to be on the competitive edge.

If you started your business like most store owners did — to make money — then I say, be prepared to do the homework or be prepared to become a statistic.
Robert F. Coviello is the founder and president of HTI Buying Group, an organization of independent houseware specialty store retailers and industry vendors. He is also president of Housewares Tabletop International, a consulting firm that provides innovative solutions to strategic challenges facing companies in today’s dynamic housewares and tabletop industry. Bob has more than 35 years of experience in the industry and is an acknowledged industry expert in the housewares field.