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.
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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.