Retailers looking to replicate the efficiency of bigger players like Apple would do well to focus their attention on one key measurement of success, according to entrepreneur Marcus Lemonis.
Advising struggling New York-based Bowery Kitchen Supplies on the latest episode of CNBC's "The Profit," Lemonis reveals straightforward ways for any merchandiser to improve profits and evaluate its progress.
"One metric [used] in measuring a retailer's success or its performance is to calculate its sales per square foot," Lemonis says. "By using their space more effectively, they could raise that number dramatically."
By increasing sales per square foot by $100 at Bowery's sole 4,000-square-foot store, Lemonis calculates that that making simple changes would bring in about $400,000 in additional revenue. Here are his tips for any business looking to do the same.
Part of the problem that led to Bowery Kitchen Supplies registering a $100,000 annual loss was that they accumulated too much inventory, which was scattered about the store. Product offerings and dedicated floor-space were based on whims rather than the profitability of respective departments.
"In order to really make sure the space works, you have to develop a merchandising plan," Lemonis says. "And we want to use the sales data to determine what departments are going to be there, how it's going to be organized, and quite frankly if a department should even exist at all."
By analyzing the store's sales data, owners Howard Nourieli and Robyn Coval are able to identify where they had been under-dedicating precious retail space to proven profit generators like glassware and textiles.
After identifying the key departments customers appreciate most, Lemonis develops a strategy centered around "anchor tenants" — products meant to boost profits for a entire department by establishing the product offering's legitimacy.
"One of the ways that you improve the credibility of your business is to anchor one of those departments with well-known brands," Lemonis explains. "The credibility that you have as a brand retailer will spill over into the products that don't have established brands with really good margins."
To establish its credibility in the newly expanded textile department, Lemonis adds designer aprons from New York chef wear designer Tilit to the portfolio. He hopes premium glasses from Balter Sales will be able to give a lift to the store's expanded glassware department, ideally at least doubling revenues.
The store also rearranges its layout to make it simpler for customers to navigate.
"When I first saw the store it looked like a warehouse jammed with products all over the place," Lemons says, describing it more as a hardware store for kitchen supplies. "Now the store looks organized, with strategic displays and clear departments. "
New signs clearly label where items can be found, and window additions seek to capitalize on the store's busy storefront, which is in the heart of New York's heavily trafficked Chelsea Market.
"We used the area by the window to merchandise high-margin coffee and accessories," says Lemonis. "The goal is to appeal to anybody that walks by."