Same Store Sales Don't Really Show the Growth, Recovery or Hope First Reported by U.S. Retail Industry Experts in September, 2009

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Same Store Sales Don't Really Show the Growth, Recovery or Hope First Reported by U.S. Retail Industry Experts in September, 2009 By Barbara Farfan

Monday October 12, 2009

Comparing this year's sales in stores open for at least a year with last year's sales in stores open for at least a year is supposed to reveal the strength of a retail chain. This is the premise of same store sales figures and this is what motivates members of the U.S. retail industry to go to the trouble of calculating, reporting, and analyzing same store sales monthly, quarterly, and annually.

Based on this premise of "strength," same store sales of the Old Navy chain not only had strength in September 2009, the chain seemingly developed super powers. With an impressive 13% increase in same store sales as compared to September 2008, Old Navy rocketed into positive sales territory faster than a speeding retail recovery.

To be fair to all other publicly traded U.S. retail chains, Old Navy was at a distinct advantage because it was comparing this year's September sales with last year's September, which saw an embarrassing 24% same store sales drop. And that 2008 drop was in comparison to its September 2007 sales drop of 8%, which was compared to its 3% drop in 2006, its 7% drop in 2005 and its 6% drop in 2004. In fact, Old Navy hasn't seen a same store sales increase in six years worth of Septembers.

So is this year's 13% increase really a show of Old Navy's "strength?" As much as sitting up in the intensive care unit after being hit by a bus can be viewed as strength, Old Navy did show some signs of recovery progress in September, 2009.

The problem with same store sales numbers is that they represent a limited view, but they are often given a very broad interpretation. An article in the Wall Street Journal said that the 2009 September same store sales figures "indicate that consumer confidence is beginning to return." Other headlines declared that sales were "better than expected," "on the rise," and "bouncing from the bottom." ABC News said that retail sales in September were "a sign consumer spending has started to recover and the economy was growing again." Really?

The New York Times tried to put things into perspective by reminding its readers that even though there was an upturn in September, 2009, the sales in major retailing categories were only back to 2005 levels. This is a good reminder. But let's also not forget that for some retailers, even getting back to 2005 levels is a faraway dream that is not going to be realized any time in the near future.

As an example, the executives at Limited Brands were likely giddy about seeing a plus sign in front of the chain's September, 2009 same store sales figure. It's the first time that's happened since August, 2007, so it was something worth celebrating.

A plus sign in front of same store sales is not only supposed to be a sign of strength, it's also supposed to indicate "growth." Let's take a look at the Limited's "growth" by comparing its sales figures from previous September months:

• $654.8 million - September, 2009
• $673.4 million - September, 2008
• $713.2 million - September, 2007
• $781.3 million - September, 2006
• $687.3 million - September, 2005
• $679.3 million - September, 2004
• $714.4 million - September, 2003
• $642.5 million - September, 2002

So, yes. The Limited saw some growth - if you're comparing its September 2009 sales with its September 2002 sales. But if you're comparing this September with any other September for the past seven years, the 2009 results can hardly be labeled as "growth."

Despite all other evidence, whenever a magical "plus" sign pops in front of a same store sales percentage, any history beyond one year seems to be disregarded by retail experts, who respond with unreasonable optimism.

The reward to Limited Brands for doing nothing more than exceeding its September 2002 sales levels was an immediate 4% lift in its stock prices. That puts the company's stock prices at least 10% higher than they were in September 2002. Somehow that much of a reward seems like major exuberance for a minor uptick that really wasn't all that positive.

Same store sales figures are a financial shorthand intended to provide investors with a year-over-year benchmark. But when the meaning of the numbers are misinterpreted, misunderstood, or misrepresented, it's like the shorthand has been written by a stenographer with bad handwriting. Instead of taking the time to figure out what the numbers really mean, the interpreters just see what they want to believe and then respond in an oddly disproportionate way.

Let's take a holistic and realistic look at the September, 2009 same store sales figures. Aeropostale had a 19% increase. That's on top of a 5% increase in September, 2008 and a 1.3% increase in 2007. That's what "growth" looks like.

Buckle posted a 5.1% sales increase in September 2009. That's on top of a 19.7% increase in September 2008, and a 10.9% increase in September 2007. That's what "strength" looks like.

Kohl's showed a 5.5% same store sales increase last month. But that was on top of an identical drop of 5.5% in September 2008. And that was on top of a 3.2% same store sales decrease in September 2007. Kohl's numbers might have looked positive last month, but they didn't exactly represent the "strength" or "growth" that positive same store sales are supposed to indicate.

Looking at a history of September same store sales figures reveals that of the 14 retail chains that posted positive same store sales figures in September, 2009, nearly half of them were comparing themselves to the negative numbers they had posted in September, 2008. It's easy to look positive when you're comparing yourself to your own negative past.

Of the 26 chains that still had minus signs in front of their same store sales figures last month, more than half of those declines were on top of declines in September 2008 as well. Negative on top of meltdown negative is not just doubly negative, it's more like negative squared.

Speaking of September 2008, the negative same store sales numbers that where posted that month by Neiman Marcus, Dillard's and Stein Mart were blamed in part on the impact of three major hurricanes. This year, those three chains had sales that fell even lower than last year's post-hurricane levels. Perhaps there are a few chains that are "bouncing off the bottom," but clearly there are still many U.S. retail chains that haven't found their bottom yet.

In response to the September 2009 retail sales numbers, the chief economist at the International Council of Shopping Centers declared "Let the retail recovery begin!" We'll just file that in the same folder as Ben Bernanke's "Recession is over" declaration last month, to be pulled out and re-read at a more appropriate time. At some point in the future both men will be right. But as long as jobs are still scarce, stores are still closing, and same store sales are still coming in at 2002 levels, neither economic expert is right quite yet.

Hope is an essential ingredient for economic recovery. But too much hope too soon could prove to be a setup for a huge consumer confidence disappointment. And when faced with record high unemployment, rapidly disappearing unemployment benefits, and a less than jolly holiday budget, the one thing that will snap consumer wallets shut even tighter than they've been before is another crisis of confidence.

While September same store sales are not really as good as many people want to believe they are, they're at least good enough to inspire cautious optimism. Considering the state that the U.S. retail industry was in this time last year, cautious optimism represents a huge improvement. For now, that is enough.