Space - or Return on Space Employed (ROSE)

In physics time and space are intimately connected - strangely enough, also in business. Location is critical, as is the amount of space available - and space really costs money! Most stores are restricted by space as resource.

How you manage space in a hardware retail store will determine which and how many customers you can satisfy and how much money you make. You utilise the space to stock those products you feel will satisfy your customers needs, whilst ensuring maximum profit. Some carry a higher margin; others turn over faster; some need more time and effort to sell; others' sell themselves'; some don't make much profit but customers expect you to have them and so on.

This delicate mix determines the success of your business. Think of fast moving, low-profit, space-wasting cement and slow moving, low-profit power tools (taking up a little space): both products lead to other sales that are more profitable such as builder's tools, paint and power tool accessories

Your mix of products and your store layout determines what you are for your market. Most store and department managers design the layout and determine the mix based on intuition, experience, a touch of common sense and crossed fingers!

The winners in the retail game measure the product's efficiently by its ROSE (Return on Space Employed). That is Gross Profit per month compared to the amount of space it uses. Certain products generate considerable profit within the space utilised; others are regarded as enablers - they hopefully bring customers into the shop, but they don't pay their own way.

In order to accurately compare apples with apples (and know how to choose the best apple) gross profit per square meter (GP/m²) is critical measure. How much gross profit/m² does the dump bin with high margin multi-plugs on 'Special' give you versus the shelf with plumbing accessories? Which ranges should be stocked in width and depth and where should you just keep enough to satisfy basic demands?

You cannot have everything everyone needs - but almost anything you keep will sell - sooner or later. Only ruthless weeding out of products and ranges with low ROSE and replacing them with good margin products that sell fast enough to give you higher Monthly Gross Profit in Rands per square meter will result in a more successful store.

Next to staff, space is the most valuable and expensive asset you have to make money with and is the most difficult to get more of. Sell more per square meter and your shop does better.

Rather than thinking of ways to improve the whole shop, it is easier to look at each individual shelf or square meter (or running meter - see box) and compare its sales and GP to the rest of the shop. To do this is much easier than most people think and far more effective than they realise! Just do it.