August 28, 2013, 4:25 PM

SEC wants chains to cough up more e-commerce data

But Target and others say digital is part of overall shopping.

Thad Rueter

Senior Editor

Lead Photo

Online and mobile sales for Target Corp. “grew faster than industry averages” in the fourth quarter of 2012, CEO Gregg Steinhafel told analysts during a Feb. 27 conference call.

He offered no details to back that up, though, and that’s why the U.S. Securities and Exchange Commission turned skeptical. Think of the agency as a math teacher demanding to see a student’s work—in this case, the e-commerce numbers being used to presumably boost the confidence of investors.

Scan recent second-quarter earnings stories on InternetRetailer.com and it’s easy to come away with a rosy attitude about the year-over-year growth of e-commerce for retail chains: Express Inc. reported a 27% increase in web sales, for instance, while Foot Locker Inc. can brag about a 20% web gain and Gap Inc. enjoyed a 27% gain.

Such gains come amid second quarter e-commerce estimates from the U.S. Department of Commerce that show an 18.4% year-over-over increase for e-commerce spending compared with a 4.7% rise for all U.S. retail sales.  In 2012, 34.4% of chains included in the most recent Internet Retailer Top 500 Guide met or exceeded the Top 500 growth rate of 17.53%; 41.4% of Top 500 chains met or exceeded the U.S. e-commerce growth rate in 2012 of 15.85%. By comparison, 36.2% of web-only merchants in the guide—a category that includes Amazon.com Inc.—at least met the Top 500 rate, while 38.3% did the same for the U.S. e-commerce rate.

But some chains, including Target and Wal-Mart Stores Inc., don’t break out those figures, at least not for every quarter, leading to questions about whether chains hide relatively modest e-commerce gains within other sales categories. And that’s what has drawn the attention of the SEC, which has sent letters to several of those chains asking for more e-commerce sales data. (The letters were first reported today by the Wall Street Journal.)

A  May 22 letter letter to Target, No. 18 in the Internet Retailer Top 500 Guide, is typical of what the SEC seeks. The federal agency asked Target to back up Steinhafel’s remarks with data. Target did, though the figures remain confidential to anyone outside the agency, and are not revealed in the documentation released to the public via the SEC.

Via its June 18 response to the SEC, Target also described why it did not offer more information about its e-commerce sales figures. For one, writes Target executive vice president and chief financial officer John J. Mulligan, “digital sales represented an immaterial amount of total sales.”

The chain includes e-retail sales in comparable-store figures, the letter notes.

He also writes that the chain doesn’t break out e-commerce revenue figures because “sales from one channel are not independent of other channels.” That can mean Target customers make digital purchases while inside stores, or make digital purchases based on prior visits to stores, he writes in the letter. That sounds a lot like showrooming—when customers check out products in stores before buying online from competitors, a tactic Target and other chains are trying to combat—but Mulligan tells the SEC that “Target.com was the most commonly accessed site by guests while shopping in our stores.”

The SEC has made no public response to Mulligan’s June 18th response. For its part, Target has no plans to to change how it reports financial results. “At this point, we have no plans to separately report the sales generated in our digital channels from those generated in our physical locations,” a Target spokeswoman says.

Another retail chain that received a similar letter from the SEC, PetSmart Inc. (No. 341), had a similar response, but seemed to leave open the option of deeper reporting on e-commerce sales and growth. “If Internet sales comprise a material portion of our total net sales in future periods, in future filings we will disclose as appropriate the impact of internet operations,” the May 20 letter reads.

PetSmart also includes e-retail in comparable-store growth figures, and advances the same logic as Target does: That digital is part of the overall shopping experience, hence the lack of specific sales figures for e-commerce.

"While e-commerce is an emerging growth opportunity for our business, it comprises less than 1% of PetSmart’s sales today and is not presently material," sys a spokeswoman for the chain. "As a market leader, it is important that we don’t disclose our strategies or what we expect the growth will be in the e-commerce business to our competitors."

The SEC’s letters left at least one retail analyst supremely unimpressed. “You’d think the SEC had better things to pay attention to,” says Paula Rosenblum, a former retail executive who is a managing partner of research and advisory firm Retail Systems Research LLC. “At the end of the day, why does it matter if the sales come from stores or on-line channels? Why should an investor care which channel they come from?”

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