Online Retail Equivalent to Same Store Sales


There’s a lot of talk this time of year about retail sales, consumer spending and what this means for The Economy.  With this talk comes statistics, and with these statistics come the classic metric of traditional retail, Same-Store Sales , or as I like to call it, Seam Sore Stales (Stale Sore Seams?  Stole Sears Mare?). 

Same-store sales is a simple but effective gauge of the financial health of a retailer — it indicates how a company is doing within its base of existing stores (1 year or older, by convention).  Sales results from newly opened locations during the reporting  period will not affect the same-stores sales number, which is good, because growth through new openings tends to cloud the picture for managers and investors who want to know how a retail chain is actually performing, all other factors aside. 

Amazon.com recently made its annual “best year of sales ever” press release and received numerous scathing critques from skeptical analysts (and maybe even some hopeful short sellers).   The problem with Amazon.com and other e-tailers is that they still enjoy the shroud of hype of opacity today as they did in the late 90’s.  There is nothing close to a sames-stores sales metric out there for e-tailers.   Online businesses routinely open “new locations” in the form of alternate websites (whether acquired or internally developed) as well as new sections of their websites that differ dramatically from their core product offering.  E-tailers do not typically break out these numbers for investors, let alone give visibility to key metrics of e-tailing health such as order size (or even revenue-per-customer), conversion rate (the e-tail equivalent to “revenues-per-square-foot”), customer retention rate (“loyalty”) or the like.  As a result, their weak performance (or outright mismanagement) can go undetected beneath a surface of selectively chosen numbers. 

While it would be nice to have something as simple to understand as same-store sales for online retail, the analogy unfortunately doesn’t work. Traditional retailers are “allowed” to offer new products within the walls of their stores and still have those dollars count towards same-store sales.  Without physical walls, it’s hard to decide where to draw the line of “new store” and “new product line” for e-tailers.   Yet, leaving aside semantics, there is a fundamental logic and rigor behind the same-store sales metric that makes it compelling for understanding traditional retailers, namely, “how well is this business doing in the areas that it has previously built out?”  Without this rigorous standard to stick with, it’s too easy for online retailers to get away with a whole lot of fluff and b.s. 

I once witnessed the perils of the choose-your-own-metric dot-com management style at an e-tailer’s company meeting, a few years ago.   This was a company that, according to a well-known retail veteran,  was “subsisting as the #2 or #3 player in a whole bunch of different categories,”  with “unstable leadership.”  As an observer, I initially thought they had promise.  But then, at the end-of-year company meeting, management made an announcement that annual sales were “up”…. well…, up…. WHEN YOU IGNORED those  product categories where their competition out-maneuvered them, and which they ultimately retreated from.  Yes, management insisted, not only were sales “up,” but they were “growing at an amazing rate.”   Yes, sales grow at an amazing rate when you ignore the part of your business that is just a few years old and dead, and focus only on the part that took off in recent months.  It’s ok guys.  Just fess up.  Your earlier store didn’t succeed, so you’ve decided to build a new store.  Time will tell if that new store does better.   However, lacking the discipline of a true same-store-sales -like metric to stick by, but having plenty of deep fear and insecurity, these folks perpetuated the image of the unscrupulous dot-con,  spinning their humble-but-still-decent story into an out-of-proportion blustering lie. Was it neccessary?  Probably not.  Did it cultivate employees trust in their leadership? Definitely not.  What it did do was prolong the inevitable decisions that would have to be made, to insure the health of the company and the protection of the venture backers’ considerable investment.

So where do we go from here?  I say, release the key metrics.  Tell us your conversion rates.  Tell us your average order size.  There’s no competitive issue — all the e-tail insiders know these numbers anyway

Barring that, at the very least, let’s get a breakdown by website (flagship site versus all the other stuff, including recent launches and acquisitions), or perhaps a little more granularity on those merchandise categories.  Not to pick on Amazon.com or anything (but this is what comes with the leadership territory), here is the merchandise-type breakdown of their Net Sales, in their last annual report (divided between the “North America” and “International” regions):

Media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronics and other general merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 

Compare that against how they broke-out their “Cash-and-Equivalents” holdings:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government and agency securities . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign government and agency securities . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

Seriously, I would gladly trade some of that detail on Amazon’s cash-equivalent securities, to get some info about, oh, I don’t know, let’s say… BOOK sales. Or maybe even a distinction between the “Electronics” and the “other” for starters.

This lopsided approach to what is important detail from an investor’s point of view is largely a function of SEC reporting requirements. When those requirements change, there will be some accountant fees and some bruised egos, but long term, we’ll see better-educated investors and improved management practices. And a lot less bluster.

Advertisements

About danspira

My blog is at: http://danspira.com. My face in real life appears at a higher resolution, although I do feel pixelated sometimes.

Posted on December 29, 2008, in Accounting, Analytics, Business, E-Commerce. Bookmark the permalink. Leave a comment.

Leave a Reply -- for humans only, no spambots

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: