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Measuring web sales’ impact on financial success
Reporting online sales as part of a retail chain’s same-store sales can make a big difference in how financial results are perceived on Wall Street, according to a study by RSR Research.
Many chain retailers have been secretive about online sales. While some report their numbers deep in government-required filings, those numbers often get little or no mention in earnings releases and many senior executives don’t mention them in analysts’ calls unless asked. That needs to change, says Nikki Baird, managing partner of retail research company RSR Research. “Wall Street should be asking retailers about their online sales numbers,” Baird says. “Those are important to know because you can’t succeed today with just stores.”
Baird researched offline and online sales at some well known chains. What she found in her early research is that reporting online sales as part of a chain’s same-store sales can make a big difference in how financial results are perceived.
Her example focused on Abercrombie & Fitch Co. Abercrombie reported falling or flat same-store sales for each of the past five quarters. In that same period, online sales grew from 42% to 66% each quarter. The web accounts for about 5% of total sales for Abercrombie.
That seems like a small amount, but it’s enough to make a big difference to Abercrombie’s same-store sales figures. When Baird computed same-store sales including the web, they grew every one of the past five quarters. “It behooves retailers to report same-store results while accounting for web sales,” Baird says. “It’s a short-cut way to present year-over-year sales results to Wall Street, which is hooked on same-store sales.”
She notes that the web provided the equivalent of 30 stores’ revenue in the first quarter of 2005 and 100 stores’ revenue in the fourth quarter of 2007. The store base grew by about 250 during the same time, “for a lot more capital and effort involved than what it took to add 70 store equivalents through the online channel,” she adds. In 2007, Abercrombie’s total sales reached $3.75 billion while web sales were $260 million.
Baird cautions, however, that while combined same-store and web sales is a potentially important metric, retailers shouldn’t expect to be able to manage to that number. “It puts too much emphasis on stores and you have to make sure you pay enough attention to online sales to make sure they are growing at the rate you expect and that the web is meeting your metrics,” she says.