Consumer

Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Like-for-like sales, or "comp" sales as they're known in the U.S., are still the benchmark for comparing the performance of retailers. But as companies update the market on the crucial Christmas and new year trading period, it's clearer than ever that this is a measurement that doesn't fit the needs of investors.

Like-for-like revenues are sales from stores open at least 12 months, compared with their equivalent in the year earlier.

The term harks back to the heady days of the 1980s when retailers were opening stores like it was going out of fashion. Then, like-for-like sales gave investors a feel for how the existing store estate was trading, without all that flattery from new space.

Today, in the online world, where retailers are closing more stores than they're opening, the term looks as dated as a souped up cabriolet in the era of the electric car. 

There have always been subtle differences in the way like-for-likes are calculated. But those pale into insignificance compared with the recent phenomenon that makes “comp” sales look anything but comparable: online shopping.

In the 1980s, it was simple. Sales came through stores, bar a proportion through mail order catalogs. Today, the Internet accounts for about 10 percent and 13.5 percent respectively of U.S. and British retail sales, according to AT Kearney.

Retailers haven’t figured out yet how to deal with this in the figures they publish.

Next, the British clothing chain that gets almost 40 percent of sales online, has dispensed with like-for-likes altogether. Unfortunately, that doesn’t help. The investor just has to try to work them out for themselves.

Most retailers prefer including online sales in like-for-likes. Supporters of this combined approach argue that with so many orders placed online but collected in a store – just over 20 percent of all U.K. online non-food sales, according to OC&C Strategy Consultants – the two are just too difficult to disentangle.

That doesn’t wash either. Online is most likely included in like-for-likes because Internet sales are growing, whereas in most cases, store sales are shrinking. This means their inclusion flatters overall like-for-like sales.

Take John Lewis, one of British retail's strongest performers. Including its online sales, which account for more than a third of the total, like-for-like sales rose 5.1 percent over Christmas. Take out online, and this becomes a 3 percent decline.

Happily, some retailers are starting to show like-for-likes that exclude online. More should follow. In a model of good disclosure, Bon Marche, a fashion retailer for the older consumer, recently spelled out clearly its store-only like-for-likes.

This matters. If sales are bleeding from stores – with their associated high fixed costs – then there's a question over whether these outlets should be there.

Take Marks and Spencer, the high street retailer. It said on a conference call in November – though not in it's published accounts -- that first-half like-for-like sales of clothing and home furnishing from stores alone fell 6 percent. At the same time, it revealed it was stepping up its rate of store closures.

M&S's Same Store Sales Growth
Source: Bloomberg Intelligence
Internet Sales Growth
Growth in M&S's web revenue has outpaced bricks-and-mortar stores
Source: Bloomberg Intelligence

So Retailers should state clearly the like-for-like sales from stores alone, no matter how painful.

Until retailers – and investors – see the true impact on store sales from the inexorable march of online shopping, only then can they make an accurate assessment of how many stores they really need.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net