Does multi-channel retailing mean that the measurement of like-for-like sales has had its day?
It quickly became one of the sector’s most commonly used metrics but despite the apparent simplicity, using like-for-like to compare performance between different retailers is fraught with difficulties.
Although like-for-like sales are a relatively straightforward concept, the sector as a whole has never had a standard definition for their measurement, meaning that retailers use a diverse range of methods to calculate the figures they report.
But without an industry standard, their usefulness to those outside the business itself is limited, especially in a rapidly evolving retail environment where online sales are becoming increasingly important and new operating models are emerging.
The retail world has undergone a major transformation since like-for-like first became a widely-used metric. The growth in online shopping means that store sales, on which like-for-like figures are historically based, are no longer the be-all and end-all for retailers.
As consumers increasingly choose to make their purchasing decisions from the comfort of their sofas by laptop, or on the move by smartphone, the contribution of physical outlets to overall sales is changing. As we look ahead, many traditional retailers, particularly in the non-food sector, are just as likely to have to take into account store closures in their like-for-like measurements as new openings.
The relationship between online and physical stores sales is far from clear-cut and very difficult to define. Stores can still play a vital part in the purchasing decision but the boundaries between the channels are continuing to blur.
The KPMG/Synovate Retail Think Tank met in July to consider whether it is time for a set of guiding principles for the calculation of like-for-like sales in order to ensure they remain relevant to external stakeholders in today’s retail environment or, alternatively, whether it is time to scrap the like-for-like metric and look for something new.
We concluded that like-for-like sales still have a role to play in retailing today, but the calculation must become more standardised to ensure greater clarity in an increasingly complex retail environment. And they should be just one of a number of measures used by stakeholders to assess overall performance – rather than the primary focus.
In our latest white paper, we are suggesting that the industry and leading retailers to work together to draw up guiding principles that will ensure like-for-like sales remains a relevant metric for the 21st century. We also offered suggestions on what should and should not be included in like-for-like sales. The important areas where guiding principles would help are:
VAT: like-for-like figures should be calculated both with and without VAT to aid comparisons between retailers with differing product mixes.
Inflation: as pricing is an integral part of the overall sales proposition, no adjustment should be made.
Store refurbishments: these should be considered a regular part of doing business and as such should not be excluded from like-for-like sales, neither should any adjustment be made for periods of closure unless the circumstances are exceptional, such as in the case of a store closing for an unusually long period of time for a fundamental transformation and where it contributes a significant portion of a chain’s income.
Store extensions (mezzanines etc): the impact arising from any change to a store that results in an increase to the square footage should be excluded.
Cannibalisation: no adjustment should be made to take account of cannibalised sales.
Product mix changes: updating and changing product ranges is part of the normal course of business, so no adjustments should be made.
Discounts, promotions and vouchers: the view was that the discount element of any promotional sales should not be included in the like-for-like measure. In other words, discounts should be reflected in like-for-like at the value the customer actually paid. Similarly, future money-off vouchers should only be accounted for on redemption.
Time periods and trading updates – sales updates from retailers should, where possible, relate to the same time periods as their competitors and be comparable to previous periods. This is especially relevant for the crucial Christmas period.
Like-for-like is a popular measure due to its intrinsic simplicity, but inconsistencies in its application threaten its usefulness. Adopting a set of simple, consistent, industry standards would go a long way towards ensuring it remains a fair standard by which to measure retail performance in a multi-channel world.
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