As more shopping goes online, experts are asking whether the traditional same-store sales metric truly measures the financial health of retailers.
“We believe the metrics need to change,” said Rod Sides, vice chairman of Deloitte. “We need to understand the sources of revenue and profitability today.”
In a report, The Future of Retail Metrics, Deloitte proposes that companies should focus more on factors like “retail profit per transaction” or “sales per unique customer,” as well as existing metrics like free cash flow and revenue growth, to better capture how well a retail company is performing.
The report reviews the various forms taken by the modern retail business and looks at the different ways to measure what’s working.
“What additional data would we need to peel back the onion and get a little more information about where a business is going?” Sides asks.
Same-store sales, the year-over-year sales tally of stores open for at least 12 months expressed as a percentage change, is intended to measure the performance of brick-and-mortar locations in an apples-to-apples way that can be used to compare retailers with many outlets. (Occasionally retailers will set another timeframe for the same-store sales metric.) It does not include sales at stores open for less than 12 months or those made online.
The metric is also known as comparable-store sales or comps.
Same-store sales declines suggest that existing stores are no longer how retailers are growing their business. Gap Inc. GPS, +2.49% , for example, is closing hundreds of Gap locations after a string of monthly same-store sales decreases.
With earnings season coming, all eyes will be on same-store sales for the most recent quarter.
Among the few retailers that has moved away from same-store sales is Nordstrom Inc. JWN, +0.60% , which doesn’t report that figure any longer. On its fourth-quarter 2018 earnings call, the company said the shift to digital sparked the change, which went into effect in 2019. The company now only reports net sales growth.
“Our stores still have that role of having great sales people who are taking care of one customer at a time and making some genuine connections,” said Erik Nordstrom, co-president of the department-store on the first-quarter conference call on May 21, 2019, according to a FactSet transcript.
“But increasingly, stores play a fulfillment role. They’re locations where customers can pick up online orders and they’re locations that we fill online orders from, so we have moved our labor model in our stores to reflect what customers want and need.”
To be sure, this question didn’t just pop up in the last couple of years, and many still value the same-store sales metric.
“For department stores where so much is online, the comp store sales figures will be dismal but that doesn’t tell the whole story,” Sucharita Kodali, retail analyst at Forrester. “It is a metric, one of many and unless CFOs replace it with something else, I’m all for keeping it and analysts can deprioritize it as they see fit. More data is better than less for us though I can understand those who would like to cut it.”
Ultimately, the important thing is that the business is profitably gaining market share, not necessarily whether a sale is coming from a store or online. However, Christina Boni, vice president at Moody’s Investor Service, says more information that better tracks the path to a sale and demonstrates store productivity would be preferred.
“Ultimately, what would be helpful is to understand profit per transaction and to understand if a customer is buying purely online versus in a store,” Boni said. She notes that customers are shopping in a way that often crosses both channels.
“There’s a fixed asset in the store base and it’s helpful to see how it’s being leveraged.”
There are a number of metrics that retailers are looking at now that they weren’t in the past because of the shift in shopping habits. The same-store sales conversation won’t end anytime soon.
“It’s helpful to figure out what those metrics are that everyone can look to,” she said. “Then we have a way of benchmarking better.”