A Wall Street study that looked closely at sales per square foot(print) ranked Best Buy Co. close to the top.

How Best Buy feels about this result isn’t known, as it declined to comment. In its defense, no one there has likely ever heard of any such term as sales per square foot(print).

This could be a business measurement that catches on, though, because as the business of retailing continues to evolve into something the Dayton brothers wouldn’t even recognize, the way performance gets measured has to evolve, too.

The inventor of this business term is the Wall Street veteran Aram Rubinson of Wolfe Research, an investment research firm in New York City. He has long noticed the increasing irrele­vance of a measure that old hands at investing would surely recognize: sales per square foot.

In the old days, before Amazon.com sold its first book, this one number was a great way to track how well a retailer was doing, both compared with others as well as over time.

Both the sales and the store size mattered, of course. Any management team that boasted of 20 percent higher sales wouldn’t have a great story if it took 50 percent bigger stores to do it.

But e-commerce changes this kind of thinking. There aren’t many retailers left that don’t let customers buy anything online. What if a third of the total sales never go through a store at all? Should those be counted?

By tacking on “print” to foot, Rubin is measuring productivity by calculating total sales on all the selling space the company occupies, its entire real estate footprint.

What selling space should get added to the stores in the calculation? Rubinson decided to include those vast warehouses all of these companies seem to operate. After all, the stuff sold online has to be stored, picked and boxed up someplace before the UPS truck can take it away.

Rubinson pointed to Restoration Hardware as his best example of how misleading it can be to only measure sales per square foot.

Restoration Hardware is a good company that’s recently been growing. Last year it ­generated $818 million in retail sales and $733 million in direct sales. Divide that $1.55 billion in sales over its base of stores and it works out to $1,551 per square foot, a big number about six times the retail median sales per square foot.

That’s clearly not the right way to think about that company’s sales productivity, though, not when $733 million of its sales didn’t go through a store at all.

Restoration Hardware, as it turns out, has a lot of warehouse capacity, with a distribution network that dwarfs the total size of its store base. So Rubinson added in the 5.2 million square feet of distribution centers and ran the calculation again. At $279 per square foot(print), the sales productivity results for this company look pretty similar to the typical retailer.

Rubinson concedes the obvious, that warehouses on a per-square-foot basis cost less to build or lease than stores that are meant to appeal to the public. But that doesn’t mean warehouses are cheap.

His case study on costs came from a firm called Tractor Supply Co., a highly regarded operator of farm and ranch stores that’s based in Tennessee. Since 2001, this hot retailer has about quadrupled its store count as annual revenue climbed through $5 billion. It also went from having about 700,000 square feet of distribution-center space in 2002 to close to 4 million square feet.

To build out these warehouses, the company invested $240 million in capital. To operate them costs $111 million a year. And the company’s capital spending budget for more distribution centers over the next few years is nearly as big as the one for building new stores.

Clearly, Rubinson argues, the distribution-center budget is too big to be ignored by investors.

As for Best Buy, it had 23 distribution centers for its domestic segment as of the end of its latest fiscal year, in 17 states. Its network totals about 10.7 million square feet of space.

That’s obviously a big fleet of warehouses. But of course Best Buy has a big fleet of stores, too, at more than 40 million square feet in the United States.

Rubinson calculates its sales per square foot(print) at $667, behind only the video game retailer GameStop and Amazon.com in his ranking of two dozen companies.

“They certainly got great sales productivity,” Rubinson said of Best Buy. “They’ve got plenty of dollars to make it work.”

The recent trend by this measure has not been that encouraging, however: The same figure for Best Buy’s U.S. business two years ago was $676. Since then sales have slipped while the total selling space hasn’t contracted by as much, although the company is down one warehouse since then.

Because Rubinson is really trying to capture the impact of e-commerce sales, his results for Best Buy masked some of the progress Best Buy has made in its e-commerce business. BestBuy.com has expanded its share of the online consumer electronics market from 7.3 percent in 2010 to 10.1 percent in the first ­quarter of this year, as tracked by the investment research firm Morgan Stanley.

Rubinson has a neutral rating on Best Buy’s stock, and it should be pointed out that he’s not suggesting that his new way of looking at retailers is the one true measure of retailing performance. His firm is known for unconventional ways to look at retailers, and he’s not advising clients to dump any investments based on this one.

On the other hand, he certainly finds his new metric, sales per square foot(print), meaningful, and he intends to keep calculating it.

“We study about 450 lines on our income statement model,” Rubinson said. “What’s the harm in putting in one more?”


lee.schafer@startribune.com 612-673-4302