The Importance of Revenue Per Square Foot for Retailers

Dunkin DonutsBy Southpace Broker Andrew Loveman, CCIM

As a broker with an emphasis in retail, I was interested by a recent article on YAHOO! Finance that took a deeper look into the importance of using revenue per square foot as a success measure. In particular, this article chose Darden Restaurants, Inc., a leading company in the United States with some of the most recognizable brands in the industry such as Olive Garden, Red Lobster and Seasons 52, as its primary example of illustrating why revenue per square foot is the best way to determine the success of each restaurant. The article also goes on to discuss this as to whether Darden should pursue another “premium” cost or “lower end” cost concept.

The article interested me because at Southpace we have long discussed using revenue per square foot as one of the best measures for retail site selection. For example, many of the national chain restaurants on Highway 280 in Birmingham have revenue per square foot below their national averages. But time and time again, when a new concept comes to Birmingham the tenant always says, “We need to be on 280.”

Obviously the typical demographics are in place relative to the Highway 280 area to say it’s a great market—high household incomes, good population density and great traffic counts along the highway. But we suggest our clients consider what these other national brands’ sales are and whether their location is better positioned to their competition.

We know that highway 280, in and of itself, is not a guaranty of success. So if we can show a restaurant that other concepts are performing below their national averages, the tenant in question might consider selecting a prime location in a different part of the Birmingham MSA before choosing to be “on 280.”

At Southpace, we love revenue per square foot numbers from restaurants and retailers because these figures help us to deliver great sites to our clients.

Southpace Properties, Inc. is Alabama’s largest independent commercial real estate firm. At Southpace, we add value to the use and ownership of commercial real estate through services such as office, retail, land, warehouse and industrial sales and leasing, tenant and landlord representation, development, consulting, investment sales, property management and construction management. With 13 CCIM designees, Southpace has the highest number of CCIM accredited brokers in the Southeast.

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