Customer Experience Increase Sales per Square Foot

October 28, 2022

Retailers, who use store sampling events strategically to improve Customer Experience, see increased sales per square foot.

Sales per square foot are one of the most important and closely tracked KPIs (Key Performance Indicators) for any brick-and-mortar Retail Organization. It is very easy to understand, considering that the Occupancy Expenses are at the top of all operational expenses on the P&L statement of any retail store. 

“Sales per square foot is a measurement of productivity. It also gives the business an idea of whether the merchandising mix and the amount of merchandise on the floor are doing their job.” Rebekah Kondrat, the Founder of Rekon Retail

“Basically, sales per square foot helps you understand if you have the right product at the right place at the right price.”  While the above conditions are mandatory for successful retaining, they are not sufficient as they completely ignore the impact of Customer Experience on the overall retail marketing strategy. There will be $0 sales per square ft without customers coming to your stores.

We looked at the 12 largest US grocery retailers based on the Gross (grocery) revenue in 2021

Walmart and Sam’s Club are easily the largest grocer in the country, as the numbers above represent only grocery sales. Revenues for selling drugs, fuel, and other non-food items were excluded from all the stores as much as possible. In the case of Amazon, I separated only revenues produced by its physical stores.

The Walmart revenue hegemony (35% of the total sales) is not that surprising given the sheer number of stores (30% of the total stores) they operate, with many located in areas with very little competition. However, the quality of marketing and operations performance becomes more visible if you compare these grocers based on average store revenue. 

Costco’s Sales per Store are 3 times above the average, and we are not talking about Average retailers. They are three times better than the average sales per store of the 12 best retailers in the country. To be fair we should consider the size of these stores to appreciate fully the marketing and operational performance of these retailers since their selling floor sizes vary substantially. After all Kroger’s average store size in 2021 was 123,750 square feet, while Aldi or Trader Joe’s average store size was below 15,000.

Even after normalizing sales numbers for the size of the stores, Costco comes as a clear winner. This begs for a deeper investigation of what differentiates the four leaders from the rest. Given that most if not of these Grocers sell the same or very similar merchandise and none of them experienced wide supply change interruptions, I would venture to guess that marketing and specifically Customer Experience closely correlate with excellent revenue numbers.

Unfortunately, I have never experienced shopping in Wegman’s or H-E-B stores personally but a basic Google search yields a good number of reasons Why Wegmans food markets get the love of Customers. H-E-B is also not a stranger to the top spots on the Top Retailers for Customer Experience year after year. 

However, when it comes to Costco and Trader’s Joe it is very visible to anybody who shops there what makes these leaders stand apart from the rest:

  • Trader Joe’s product selection is the number one reason for its leadership position. Where consumers are overwhelmed with a number of choices, at Trader Joe’s they left to want more. Category Managers (or whatever they call the geniuses who curate their merchandise) are doing an incredible job.

  • Costco’s in store sampling strategy is the indisputable driver of its retail marketing strategy since it is the only grocer in this group with an advertising budget of $0. 

Most in-store demo events at Costco stores are performed by Club Demonstration Services or CDS for over 30 years. Originally the company was a part of the Costco organization, but at some point, it was set up independently for financial reasons to remove product demonstrator's employment liabilities from the corporate balance sheet. Currently, most, if not all, are independent contractors. However, not all in-store promotion events are staffed by CDS. The Vendors may choose to conduct “road show” all-day in-store promotion events staffed by their own brand ambassadors, but all in store sampling and demonstration of product events hosted in Costco stores are paid for by the vendors. Regardless of what corporate entity staff and pay for an in-store demo, they use a centralized scheduling software system managed by CDS. That system was originally developed before the separation of the CDS from the “mother ship” and is a competitive advantage empowering Costco's Word of Mouth Marketing strategy - “Come for free food - Leave with buying more than you planned”. 

Well, whether it is the causation or a correlation, the Customer Experience focused retail marketing strategy has proven to be a success!

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