Like-for-like sales figures are the measure the retail industry has traditionally judged itself on. But how relevant are they in the multichannel world and what can replace them, asks Joanna Perry
It would take the equivalent of 85 Bluewater Shopping Centres in terms of retail space to deliver the volume of sales that are coming from products purchased online in the UK.
The figure comes from PricewaterhouseCoopers, which is investigating the impact that the growth in multichannel sales has had on the retail industry.
But though the volumes of sales are substantial, there is no standard for how they are reported or how retailers attempt to explain their sales through different channels in relation to their overall success.
When Retail Week spoke to several retailers the answers varied as to whether they include internet sales and sales made using multiple channels — such as click and collect — in their like-for-like figures.
PricewaterhouseCoopers retail director Andy Garbutt says there is no consistency in what is included in like-for-likes. This limits how useful the measure is any longer to determine the success of a retail business, especially against it competitors.
For instance, Marks & Spencer says it does include sales from its Direct business, which includes its website, within its like-for-like figures. But at Next, internet sales - even where they are collected at stores - are reported separately as part of its Direct business, and are not included within its retail like-for-like measure. A spokesman for Next said the like-for-like figures it reports are purely for transactions through the tills at its stores.
Giving an investment analyst’s point of view, HSBC head of retail research Paul Smiddy says that it does not matter where a retailer’s revenue and profit comes from, the totality of the pot is what’s important. However, he adds retailers that were early with a multichannel offer could see a premium on their valuation, as it suggests the company has forward-thinking management.
Diamond Consultants partner David Oliver says that like-for-like isn’t really a multichannel measure. He adds that while it might still be considered important for externalreporting, within retailers’ businesses it is becoming less appropriate to help them make operational decisions.
“Within the retail sectors where the web has had the biggest influence - such as consumer electronics - you really need to look at the full multichannel picture to see how the business is doing, because consumers are using multiple channels,” he says.
Garbutt adds that for a retailer like Argos - with a sophisticated multichannel offer - it is difficult to strip out the volume of sales that could be attributed to a store.
There are other issues with like-for-likes and their use for comparing retailers, such as at what point new stores are included in the figures, whether the figures are net of VAT and the reporting period they cover, says Garbutt. At the moment, when retailers are closing sites, like-for-like figures at remaining stores could look better as a result - a kind of reverse cannibalisation effect.
Add internet and multichannel sales as additional factors, and it is clear to see how easily the figures can be manipulated to produce a desired result. This could be a problem if retailers believe their own hype and close their eyes to the future problems the changing nature of their businesses could create.
Gartner managing vice-president and research director John Davison spoke at the Retail IT Summit of the challenge that tier one retailers face as the proportion of their sales that come via the web increases.
Back in 2006, Gartner asked retailers how they expected the proportion of sales they generated by different channels to change. At the time the average of sales on the web was 8.5% of sales, and stores 85%. By 2011 they expected this to have changed to 16% web sales and 77% store sales. Measurements Gartner took at the end of last year show this prediction is on track to be achieved - with web sales at 11.5% of the total.
Davison says that the resulting approximate 10% drop in sales attributed to stores that will have taken place between 2006 and 2011 marks a fundamental change in retail.
He said as the retail industry approaches the 16% proportion for sales online, it doesn’t matter whether retailers consider themselves to be multichannel or not, what is important is that their customers will think that they are.
Davison also believes the customer is deciding what happens to retailers by selecting the channels they want to purchase through. He said that once a retailer is generating 20% of sales through the web it creates all kinds of operational issues.
With this in mind, whether or not you publish a like-for-like figure to keep investors and other external stakeholders happy, the question is whether you should use the measure internally?
Stuck on the web
Oliver asks: “If your website is one of the main influences on the traffic being driven to your store, then how are you driving it and how are you measuring it?” He points out that incremental web sales are used as the measure for determining ecommerce investment decisions, even though that investment could partially be driving store sales.
He says that retailers need to systematically track the impact of their website on their stores. This might mean trying to identify shoppers at the point of sale, or could be achieved to a degree through customer surveys if individual identification is not possible. Oliver thinks undertaking this work is mission-critical.
Garbutt agrees that the way retailers’ businesses are developing and becoming more complex means that new measures to assess performance may need to be introduced. For example, he says that retailers could consider the metric that mobile phone operators use for assessing the value of their relationships with customers - average revenue per user (ARPU) - as a better measure of how retailers are serving their multichannel customers.
Oracle Retail senior industry director Sarah Taylor says of like-for-likes: “Questions must be raised about whether this should remain the primary measurement of the success of a retail business. Like-for-likes are still valuable, but there should be a broader measurement of retail in place that takes into account key measurements around gross margin, profitability and other channel sales. This would provide a more accurate picture of a retail business.”
With web sales continuing to rise, and the number of multichannel services offered to consumers rising on a monthly if not weekly basis, it seems clear that like-for-likes are only going to become less valuable as a measure in the future.
Measuring online success
In late September, upmarket jewellery retailer AstleyClarke.com relaunched its website and London showroom following a branding project conducted earlier this year.
The site has been created to appeal to the “grown-up luxury customer”, which the branding work revealed is the site’s core market.
AstleyClarke.com managing director Bec Clarke says: “Our old website and showroom did not live up to the amazing jewellery collection that we have.” She adds that the retailer is one of the first to design a site specifically to appeal to a discerning 40-plus customer base that is prepared to shop online.
Best on show
Though the retailer has a showroom, its main channel to market is its site and Clarke says that she does use a like-for-like figure to measure sales across each year. However, she says that the retailer also reports on metrics such as average transaction values, visitors and conversion rates, as sales is a function of these.
The site is likely to see good comparable sales in the next year, because of all the work that has gone into improving the customer experience and the fact that there will be more merchandise available. But it is clear that other measures, such as conversion rates are also essential to demonstrate whether the site is reaching its potential.
For instance, 40 new collections will launch in the run-up to Christmas, with all merchandise on the new site split into one of three portfolios - fine, designer or contemporary.
Functionality improvements include all products being reshot for the new full-page zoom tool on product pages. The fine jewellery collection can be displayed through a showreel, and the wish list functionality has been improved to encourage gift sales.