What Are Same-Store Sales?

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Explanation

This 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. Generally, the companies experience relative 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.

Same-Store Sales Formula

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.

Example

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. 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 changePercentage ChangePercentage Change can be defined as a % change in value due to changes in the old number and new number and the values can either increase or decrease and so the change can be a positive value (+) or a negative value (-). read more 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)

Interpretation

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 yearsFiscal YearsFiscal Year (FY) is referred to as a period lasting for twelve months and is used for budgeting, account keeping and all the other financial reporting for industries. Some of the most commonly used Fiscal Years by businesses all over the world are: 1st January to 31st December, 1st April to 31st March, 1st July to 30th June and 1st October to 30th Septemberread more, 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.

Chart

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.

Importance of Same-Store Sales

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.

Advantages

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.

Conclusion

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

This article has been a guide to What are same-store sales, and what is their definition? Here we discuss the formula to calculate same-store sales and the practical example and interpretation. You may learn more about Investment Banking from the following articles –

  • Sales Mix DefinitionOutside Sales DefinitionNet Sales DefinitionGross Sales Definition