NEW YORK — Due to the ever-increasing popularity of apparel sales on the Internet, at least one expert says retailers should include Web-based same-store sales in their monthly sales reports.
This notion, however, seems to raise more questions than answers as it pertains to what would actually constitute “online same-store sales.”
With roughly two-thirds of the North American households with Internet access making purchases online, according to Forrester Research Inc., that’s potentially millions of dollars that aren’t counted in the closely watched same-store sales reports released monthly by most public retailers. Forrester has predicted that online sales will nearly double to $210 billion, excluding travel sales, by 2010. And in the apparel category, which also includes accessories and footwear, Forrester sees online sales reaching $15.2 billion this year and $25.9 billion by 2010.
Meanwhile, according to a recent National Retail Federation Foundation/BearingPoint Inc. survey, 94 percent of retail companies reported having an online presence in 2005, nearly double the amount of 2004. The study, called “Retail Horizons: Benchmarks for 2005, Forecasts for 2006,” also found that, for the third year in a row, retailers ranked increasing online sales as their number-one priority. Further, the survey, which was released in mid-January and surveyed 150 retailers and 600 senior retail executives, said that three-fourths of respondents already “integrate their Web sites with fulfillment centers and call centers,” up from less than half a year ago.
It’s clear retailers are on board with the reality of e-commerce. So for those who have an online, e-commerce presence that is more than a year old (same-store sales are most commonly counted as the percentage change in sales at chain store locations that have been open at least a year), why are “online same-store sales” not reported?
“I think they don’t include them because currently, it’s not a significant percentage of their total business, and so in terms of variability to the business, they’re not considering it to be a key indicator,” said Janet Hoffman, a partner in Accenture Ltd.’s retail practice. But Hoffman is one who advocates that retailers release same-store sales each month, referring specifically to online sales.
“I think [online sales] will probably get recognized [in same-store sales] at some point. When it’s considered to be an average reporting metric, I’m not sure. But I think based on what’s happening today, I think it’s something that should be reported month to month, especially over the next several months,” Hoffman said recently.
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Incidentally, some retailers already report total online, or direct-to-consumer, sales percentage increases (or decreases) in their monthly reports. And experts say some retailers already factor online sales into same-store sales totals. But it’s unclear how they do so. Neiman Marcus Group, for example, said on Feb. 2 that comparable-store sales at Neiman Marcus Direct, which are catalogue and online sales combined, decreased 2.6 percent in January, while total same-store sales rose 4.1 percent.
Roughly 6 percent of all apparel that’s bought in the U.S. is purchased online, according to Shop.org, the online shopping arm of the NRF. Moderate department store chain J.C. Penney Co. Inc. said in mid-January, for example, that sales from its 10-year-old Web site hit $1 billion this year. That’s more than 5 percent of the company’s expected full-year 2005 revenues.
For its part, the NRF doesn’t mandate specific sales reporting standards to the portion of goods that retailers sell online, in part because the traditional definition of the same-store sales metric measures the financial performance of physical store locations only. It would be tricky to define when an online sale should be considered a comp-store sale because the Web is not a physical location, even though some retailers’ Web sites have existed for more than five years.
Carleen Kohurt, chief financial officer of the NRF, said that “retailers are not trying to ignore this important channel of business. We’re in an evolution.” She added, “The business models are certainly changing, and with that, you will see changes in how companies measure themselves.”
Yet, even if retailers wanted to report online same-store sales, Scott Silverman, executive director of Shop.org, isn’t sure how it would be possible. He called the comparison “apples to oranges” because online comp-store sales versus traditional comp-store sales are “two different methodologies … It’s virtually impossible to reconcile the two.”
Ulysses Yannas of Buckman, Buckman & Reid agreed that adding online sales into same-store sales calculations would alter the reliability of traditional same-store sales and possibly artificially inflate the sales.
“If I live in Wisconsin and order through the Internet, which store in Wisconsin gets credit for that sale?” Yannas said. “You can’t. It isn’t proper. It confuses the issue even more with these comp-store sales.”
Howard Tubin, an analyst at Cathay Financial, noted that certain electronics retailers, such as Circuit City, count merchandise that’s bought online but picked up in a physical store as going toward that store’s same-store sales. But he’s not sure how that process would apply to apparel retailers, especially since most apparel retailers don’t offer in-store pickup.
Electronics retailers “feel the Web is an integral part of their store sales so they add the Web sales into their same-store sales base,” Tubin said. “For clothing retailers, it’s different.”
Tubin is amenable to having apparel retailers “just look at the Web as if it were one store.” That way, they could report total revenues received from the Web as Web volume in one month versus the same month a year ago, which is, again, something that a handful of retailers already do.
For her part, though, Hoffman is convinced: “The industry itself has changed, and what’s the hesitancy to expand [sales reporting] on it?”