Same Store Sales

Same-store sales or comparable-store sales, or like store sales, is a method adopted by the management to evaluate financial growth by evaluating the change in the turnover of an existing outlet in the current time by comparing it with the last year's figure generated during the same period.

The method utilizes the figure for sales of a company’s already existing store or unit or outlet for the same period in two different fiscal years. The calculation helps assess how well a company grows by comparing the sales figures of the previous year and the current year from particular stores.

• The same-store sales, comparable-store sales, or like-store sales measure financial growth by evaluating the current turnover of an existing outlet compared to last year.
• Retail chains use sales metrics to analyze performance and identify trends. Same Store Sale is helpful for pinpointing causes of declining sales and forecasting store performance.
• The same store sale method compares sales figures for a store in different fiscal years to identify performance strengths and weaknesses, allowing management to focus resources effectively.

Same store sales method is a metric commonly used to evaluate the performance of already existing outlets by comparing the turnover generated in the current period to the turnover generated during the same period in the previous year, making the comparison fundamental and easy to understand.

The evaluation helps the company keep track of the unit having better performance and the unit with the weaker performance and thus plays a crucial role in the decision-making procedure for the management to focus on the more vulnerable areas and thus maintain the overall functionality and performance of the company.

Generally, the companies experience relatively positive growth in the total turnover generated by the company compared to last year's figures. It happens typically because companies tend to increase their number of outlets and stores, which increases the company's turnover. Still, such a figure does not show the company's performance as it does not provide enough data for calculating the performance of already existing outlets.

The formula is given below.

Where,

• Total Sales (in the current year) = Sales recorded in the period taken for the current year for the particular outlet;
• Total Sales (in the previous year) = Sales recorded in the same period but the previous year for the same outlet and;
• The percentage change in sales shows the increase or decrease in the total sales recorded by the outlet in the current.
• Year compared to the total sales recorded in the previous year.

For understanding the concept better, let’s take an example;

For example, ABC Inc. is a manufacturing company with ten outlets throughout the state. The management wants to evaluate the performance of its two oldest outlets, 'P' & 'Q,' by evaluating the sales booked in February & March.

Following are the sales figures available for the outlets. Let us check the same store sales calculation and evaluate the performance of the outlets through the Same Store Sale method:

Solution

Let’s evaluate the performance of Outlet – P & Outlet – Q by using this method for both periods’ February’ & ‘March’ –

Performance of Outlet – P for the month of 'February' –

Percentage change in Sales = ((20000 /18000) - 1) * 100 = 11.11 %

Performance of Outlet – Q for the month of 'February' –

Percentage change in Sales =((22500 / 17500) – 1)*100= 28.57 %

Similarly, performance for March could be evaluated; and the result would be;

Performance of Outlet – P for the month of 'March' –

Percentage change in Sales = ((17000/21000)-1)*100 = -19.05

Percentage change in Sales = – 19.05 % (negative since the sale volume decreased)

Performance of Outlet – Q for the month of 'March' –

Percentage change in Sales =((17500/20000)-1)*100 = – 12.50 % (negative since the sale volume decreased)

This method utilizes the equivalent figures that are comparable to evaluate the percentage of change and the performance of a part, a store, or an outlet of an organization. In the above example, we can evaluate that the figures of the same outlet have been compared with the figures of the same period in both the fiscal years, which makes it more favorable an equivalent comparison. In case of comparison of figures for outlet P & Q for February, there is an 11.11% & 28.57 % increase in total sales of both the outlets respectively in the year 2020, whereas, in March, there is a decrease in total sales by 19.05% in case of Outlet P & 12.50% in case of Outlet Q. So this helps the organization to keep track of its total performance regarding sales and identify its strong point and weak areas at the same time.

Same-Store Sale Chart could also be formulated for the above example:

It shows the percentage change in sales figures for the period the same is calculated. It helps to evaluate the fluctuation frequency and derive the stability in the business of the concerned unit or outlet.

The same sale store is an essential concept for retail chain stores and it has various advantages. To understand the same store sales definition, it is important to understand their significance:

• By using the same sales store concept or metric, management can analyze the store's performance. Using this metric, management can analyze a store's growth and whether the store's sales have increased compared to the last period.
• The management can identify the reason for the declined sales of a store. By using this metric, management would be able to decide to open a new store in a new location.
• Same Sale Store helps management, investor, and market analyst analyze the future performance of a store and whether product demand is increasing in the market.
• The same sale store metric is useful for management in making decisions regarding continuing existing retail stores and opening new retail stores.
• This concept gives a clear picture of the growth of a retail chain, whether the store is performing and growing or a few corrective actions are required for maintaining growth. If a store is not performing well, management can decide to shut down that particular store.
• Investors prefer to see significant growth in a firm or company, this metric gives that comparison, and investors can analyze whether a retail chain is a growing firm or not.

This article has been a guide to what are Same store sales. Here, we explain the concept with formula, calculation example, interpretation, and importance. You may learn more about Investment Banking from the following articles –

• Sales Mix Definition
• Outside Sales Definition
• Net Sales Definition
• Gross Sales Definition