The Truth About Retail Sales Reporting

Retail sales during the  Thanksgiving and Christmas holiday season are followed by the news media very closely.  This is because consumer spending is a key economic barometer and the annual holiday season accounts for a large  percentage of total annual retail sales. Some estimates are that the fourth quarter retail sales account for more than 30% of total retail sales reported by department stores, specialty stores and mass merchandisers. The percentages can vary widely. For example December sales for jewelry stores account for 23% of the total annual sales.

“This November, (same-store) sales are going to be incredibly important to gauge the state of consumer spending, and thus fourth-quarter earnings and stock trajectory, and it’s also an important statement about the economic recovery,” said Deutsche Bank analyst Bill Dreher.

Comments like this from Bill and others may not be accurate.  I learned how to analyze retail performance from experts responsible for running multi-billion dollar international businesses.  These lessons helped me tremendously in operating my own retail business and in my business consulting work with other retail companies.  Consider the following:

Same Store Sales Can Be Very Misleading

Same store sales are when you compare the sales in one period, for example November, with the sales from that same location the previous year. Seems simple enough but it is not always straight forward. For example, consider one store.  What is your conclusion if the store just opened the first of  November last year or if a major competitor closed a location near you this year?  There are many variables that can affect same store sales and you have to be careful in knowing you have true comparability.

Consider 2009, the same store sales that will be reported this year are being compared to 2008 which is considered one of  the weakest retail sales periods ever. At the company level a moderate increase in same store sales this year may not be a reason to celebrate except that of course it is better than a decline.  Regardless of the results, retailers must go deeper than looking at the aggregate numbers.  They must keep “peeling back  the onion” until the lowest common denominator is evaluated and that is at the item level.

Same Store Sales Are Not A Direct Indicator of Profits

Many retailers promote heavily in the holiday season. This is part of the marketing funnel.  Hot items sold at or below cost  are used as lead generators.  The Internet has educated shoppers on finding the best deals.  This has resulted in  add on sales  dropping which means more of the sales being reported on a monthly basis have lower profit margins.

Keys To Successful Retailing In This Economy

First point is the foundation of  a profitable business in any industry is largely the same.  Companies make money when they offer what people want at a profitable price.  In retail, customers often want a shopping experience that goes beyond price. For example, a recent testimonial from a customers experience on Black Friday demonstrated the success of a much smaller retailer with this customer vs. the major competitor. While having a slightly lower price for the laptop offered, the major retailer did not have any “unallocated laptops”   at 5 in the morning even though the item was heavily promoted. On top of that the crowds there were not pleasant to navigate.  The competing smaller chain, had inventory available and a more pleasant shopping experience.  So you know who got the business and a repeat customer.

Off line, location is increasingly important as well as the overall appearance inside and outside.  Large retailers win the game store by store.  When demographics and traffic patterns change, and they always are, the store needs to change as well.

Customer shopping experience is major for building customer loyalty.  This is mostly how customers are treated by staff when shopping.  This is the one area where many retailers fail.  There are great examples of customer service but they are not the norm.  On line, ease of navigation, speed of checkout and access to customer service are key. Many retailers with web sites pay little attention to the customer service that is needed.  People have questions and at times returns or exchanges may be needed. How this is handled is key.

Have you noticed the most ridiculous new message you get when calling larger customer support lines?  It goes something like this: “Due to heavy call volume, your wait may be longer than normal. Many questions can be answered at our web site.”  I don’t know about you but when I hear that message, which I do with increasing frequency, I think …this company has problems.

At The End of The Day, Profit Must Be Made

As a business consultant and coach, I always look to the profit trends and what is the practical near term strategy for strengthening profits.  Every  business must earn a profit to survive and grow.   There is always an opportunity to improve business performance.  It requires defining the performance targets then establishing  a disciplined process for meeting or exceeding those targets.  That process always works when the process is worked.

Sending you energy of health, happiness, prosperity

Steve Pohlit

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About: Steve Pohlit is a CPA,MBA and has been the CFO of several major domestic and international companies.  Steve is a business owner and an expert business consultant focused on building profits and net asset value. He is very experienced with Internet marketing and social media marketing.  All articles published by Steve unless specifically restricted may be freely published with this resource information.

Comments On The WSJ August Retail Sales

The Headline Reads: Retailers Report Weak Sales For August (Click For The Story) Then highlight is:

“Industrywide, same-store sales fell for a 12th straight month — highlighting the woes retailers have been under as consumer spending continues to decline.”

Then there is discussion as to what will happen this holiday season as well as the impact of the clunker program. This is followed by reports of what key public companies in the retail industry reported. Remember there is a lot that is not reported. Also remember, economic recovery is driven by consumer spending and there is little evidence that is strengthening.

The point made that I commented on was that going forward the monthly same store comparisons will look better because you are comparing against increasingly weak numbers from last year as retailers tanked in the fall of 2008. Here is what I wrote:

The comparison may show less dramatic declines and even a greater number of positive percentages when current year sales are compared against months last year when retailers began to experience sharp declines. Those may be feel good metrics. However, the key is what are the volumes and margins that are planned in connection with an acceptable profit plan and how are actual revenue and profits doing against that?

Typically that information is a bit more difficult to extract. The well run retailers have a profit plan by location that is based on category proformas. The key is to be profitable at each location and in each category within that location. I still see very little advancement in the use of direct response marketing and social media marketing. Tools and technology that have been readily available and proven to work for quite some time.

There is a lot of the “same ol same ol” and that is not going to work in an economic climate likely to be very soft for quite awhile.

Steve Pohlit