Metric sales

Boom in e-commerce raises questions about the reliability of comparable store sales measurement

As more and more purchases are made online, experts wonder if the traditional measure of same-store sales really measures the financial health of retailers.

“We believe the parameters need to change,” said Rod Sides, vice president of Deloitte. “We need to understand the sources of income and profitability today. “

In a report, The Future of Retail Metrics, Deloitte suggests that companies focus more on factors such as “retail profit per transaction” or “sales per unique customer”, as well as on existing metrics like cash flow. free cash flow and revenue growth, to better capture the performance of a retail business.

The report reviews the different forms taken by modern retail and examines the different ways to measure what works.

“What additional data would we need to peel the onion and get a little more information about where a business is going? Sides asks.

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Same-store sales, the tally of year-over-year sales of stores that have been open for 12 months or more expressed as a percentage change, are intended to measure the performance of physical locations in an apple-to-apple fashion that can be used to compare retailers with many outlets. (Sometimes retailers will set a different timeframe for measuring sales from the same store.) This does not include sales in stores that have been open for less than 12 months or those made online.

The metric is also known as same store sales or comps.

Declines in comparable store sales suggest that existing stores are no longer the way retailers grow their business. Gap inc. GPS,
+1.50%
, for example, is closing hundreds of Gap stores after a series of monthly drops in same-store sales.

And investor alarm bells have sounded after department stores like JC Penney Co. Inc. US: JCP
and Macy’s Inc. M,
+ 2.67%
reported lower comparable store sales over the holiday season.

As the earnings season approaches, all eyes will be on same-store sales for the most recent quarter.

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Among the few retailers that have moved away from same-store sales is Nordstrom Inc. JWN,
+ 2.03%
, which no longer reports this figure. In its fourth quarter 2018 earnings call, the company said the digital switchover triggered the switch, which took effect in 2019. The company is now only reporting net sales growth.

“Our stores always have this role of having great salespeople who take care of one customer at a time and make real connections,” said Erik Nordstrom, department store co-president on the Premier’s conference call. quarter in May. December 21, 2019, according to a FactSet transcript.

“But more and more, stores play a role of fulfillment. These are places where customers can pick up orders online and these are places we fill orders online from, so we’ve moved our workforce model to our stores to reflect what customers want. and need.

Of course, this question has not only arisen in the past couple of years, and many still like the measurement of sales from the same store.

“For department stores where so much is online, model store sales numbers will be dismal, but that doesn’t tell the whole story,” Sucharita Kodali, retail analyst at Forrester. “It’s one metric among many and unless CFOs replace it with something else, I’m all for keeping it and analysts can deprioritize it however they see fit. Better more data than less for us, although I can understand who would like to delete it. “

At the end of the day, the important thing is that the business is gaining market share profitably, not necessarily if a sale comes from a store or online. However, Christina Boni, vice president of Moody’s Investor Service, said more information to better track the path to a sale and demonstrate the store’s productivity would be preferable.

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“Ultimately what would be helpful is understanding profit per transaction and understanding if a customer is only buying online rather than in a store,” Boni said. She notes that customers buy in a way that often crosses both channels.

“There’s an asset in the store base and it’s helpful to see how it’s being operated. “

There are a number of metrics that retailers are now looking at that they weren’t in the past due to the change in shopping habits. The conversation about same-store sales isn’t going to end anytime soon.

“It helps to figure out which are these measures that everyone can turn to,” she said. “Then we have a way to better compare. “