An interesting read - might surprise some.
Richard 
Secrets of the Top 10 Most Powerful Retailers
BNet, 25 Aug 2011
This week RetailSails released its report on the top retail chains in the U.S. ranked by the industry standard of sales per square foot. One glance at the list and you’ll see that these retailers are throwing haymaker, knockout punches, with numbers that are off the charts for their categories. That they’re posting these stats over the last four quarters in a dismal economy makes it all the more impressive.
Despite the fact that these companies represent a diverse sampling of industries — from gadgets to gold to golf shirts — almost all of them have woven their success from common threads, which I’ll get to in a moment.
Here’s a look at the
top 10 retailers and their
sales per square foot:
1. Apple: $5,626
2. Tiffany & Co.: $2,974
3. Coach: $1,820
4. Lululemon Athletica: $1,731
5. GameStop: $1,009
6. Costco Wholesale: $998
7. Signet Jewelers: $955
8. Polo Ralph Lauren: $904
9. Whole Foods Market: $867
10. Best Buy: $831
For perspective, consider that a hot and much-admired retailer like Target has sales per square foot in the neighborhood of $290, typical of many retailers in many segments. That means that an Apple store — which might dedicate the same display space to one phone as Target does to a full rack of clothes — extracts almost 2000% more revenue from that real estate.*
So what is it that these star performers are doing to put up such extraordinary numbers? Not all of the same rules apply to every one of these companies, but all of them excel at one thing: creating “gotta have it” retail environments, products, and experiences in one or more of these ways:
- They turn “I want” into “I need“: Other than Costco selling staple groceries, not one of these companies sells anything that anyone genuinely needs. But through a combination of drool-worthy products, exceptional merchandising, buzz, and fomenting what amounts to peer pressure among their target customers (”I’ve gotta have what she has!”), these companies pull off masterful manipulations of customer psychology. A discretionary want becomes a can’t-live-without need. I might get myself into trouble here, but no woman needs another handbag. If she does, she certainly doesn’t need a $1,000 Coach python handbag. But so-and-so is carrying one… and besides, they last forever, and really, you haven’t treated yourself to a nice new bag in ages. Suddenly, you need that bag. The product and the store elicit an emotional response, and emotion trumps reason.
- They aren’t afraid of high prices: On the contrary, high prices are a key part of the formula for nearly all of these companies (Costco being the most notable of one or two exceptions, but it works its magic in other ways). More expensive suggests better (even if it’s not) and more exclusive (or elusive). A high price offers entry into a club of sorts. Anyone can buy a polo shirt for $20, but one with a horse on it, folded just-so on a fancy table, in a store that smells great? That screams status, and that’s worth $85. The $85 shirt buys a “membership” that the $20 shirt does not. Same goes for a $300 MP3 player, $100 yoga pants, or anything in an iconic, light blue box.
- They employ “strategic scarcity”: It’s hard-wired from childhood that one of the best ways to make someone want something is to tell him he can’t have it. And many of these killer companies use this weapon, either in reality by controlling production (wait in line or you might not get one), or perception (only one purse in a heavenly-lit cubicle in a sparsely-stocked boutique). Both fuel rabid desire and support high prices. Luxury items — even some as outrageously extreme as the $2 million Bugatti Veyron supercar — often have waiting lists of buyers in the worst of economic times. Most of us aren’t in the market for that kind of transportation, but the same psychology applies when the newest video game console is predicted to sell out on release day.
For sure, the high-end usually takes a hit when times are tough. But in the long run, there is always a market for the best, or what we are made to believe is the best. Me-too companies come and go, but companies synonymous with exclusivity, aspiration, and want-over-need are often the oldest and most enduring: Rolex since 1905; Louis Vuitton since 1854; Rolls Royce since 1904.
In many ways these companies and their strategies fly in the face of conventional business wisdom. They don’t fill needs or solve problems — especially the ones typically associated with a crummy economy. They don’t necessarily target the largest possible audience. With some exceptions, they don’t even try to price competitively. What they do is trigger powerful, visceral emotions: They provide the most excitement, desire, pleasure, lust, envy and happiness per square foot.
[* It will be interesting to see if anything changes post-Jobs, but Apple has a pretty colossal lead, knows the formula, and Jobs will still have a voice for the time-being, so early bets are that they'll be just fine.]
Michael Hess is founder and CEO of online retailer Skooba Design, which designs and manufactures an award-winning line of carrying cases for laptops and other applications. He also has a background in merchandising, sales, marketing, and purchasing for bricks & mortar retailers.
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Really it's being cheap in the long run- I'll drop some good money knowing I don't have to replace that item as often as a cheaper version.
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