There are many, many, many indicators that come out monthly, quarterly, and annually for exporters and importers to decide if a company is trending up.

Simply put, you want your products sold by a company that has an increasing number of people coming through.

One way to track people would be to install an electronic trip wire at each entrance to count the people who enter. However, that would not tell you if they purchased anything or what they purchased. Moreover, it would not explain if sales were increasing or decreasing. Same store sales are good indicators to look at it, but it they are not perfect either.

What are same store sales? They are the total revenue amount change from the same time period at stores for a retail chain that have been open for at least a year. The important aspect for the same store sales indicator is that it does not look at closed or newly opened stores. A chain in a market that has a positive same store sales indicator shows that more revenue was generated over the previous year, but that does not necessarily mean that traffic has increased. Parkson, a department store chain in China recently released stated that for 1st quarter, 2011 its same store sales increased 13.9%. That looks positive. However, inflation could be part of it, as well as a change in merchandise mix to higher priced items.

There a few more things to consider when looking at same store sales. For one, it is a lagging indicator as is most data found in financial reports.

A positive or negative reading is only telling you what happened in the past.

Changes in strategy or tactics that impact sales and traffic will not show up until future reports. Also, the indicator could be skewed depending where a holiday, sale event, or disaster falls. For example, Chinese New Year in China follows the lunar calendar so it falls differently each year. This year it fell in February, in 2012 it falls in January. Same store sales for next February may look negative for Parkson and other retailers in China, while January may look positive because of the holiday moving. Looking at a trend of many months is best to overcome monthly swings. Finally, same store sales are a macro indicator that may hide underlying micro problems within the retail chain.

As with most analysis, looking at trends is the best way to use same store sales.

For multi-nationals, it is also important to look at the market they are in. Wal-mart has suffered 8 consecutive quarters of decreasing same store sales in its US operations; however its operations in other countries have increasing same store sales.

Wal-Mart 4th Quarter, 2011 Same Store Sales
(Fiscal Year ending 1/31/11)

Same store sales are just one indicator to look at.

Dig deeper with Parkson and Wal-Mart and you will find other micro level detail that may change your thoughts on the same store sales figures. Higher profit margin fashion and apparel items made up 48% of merchandise sales for Parkson. In Wal-Mart China the average ticket price was up 9.6%. However, traffic was down 7.2% because of merchandise changes during an acquisition. It is always best to look behind the numbers!!!


By: Matt Flax - Senior Business Advisor at DragonGate.Asia



Data/Information Links:

Parkson Quarterly Performance Report
http://www.chinaretailnews.com/2011/05/24/4312-parkson-china-releases-quarterly-retail-performance-report/
Wal-Mart CEO discusses 4th Quarter, 2011 Results
http://seekingalpha.com/article/254292-wal-mart-stores-ceo-discusses-q4-2011-results-earnings-call-transcript