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Are online sales metrics irrelevant for brick and click retailers?
Dick’s Sporting Goods became the latest retailer to tell Wall Street it will move away from reporting online metrics.
On its fourth-quarter conference call, Lee Belitsky, CFO, said that beginning in the first quarter of 2020, although Dick’s will continue to provide consolidated same-store sales results, it will no longer separately provide e-commerce sales growth and penetration metrics.
“Our athletes [customers] are increasingly shopping across multiple channels and on the same transaction. And to attribute the sale to one channel or the other can be quite arbitrary,” said Mr. Belitsky. “We believe this single view of the consumer best represents our omnichannel approach, which centers around serving our athletes, whenever, wherever and however they want to shop.”
In the fourth quarter, online sales represented 25 percent of revenues, up from 23 percent a year ago.
The change comes as the retailer reported that its approximately 850 stores contributed “tremendously” to e-commerce growth through BOPIS and ship from store. For 2019, BOPIS grew at twice the rate of the 15 percent sales growth seen in the overall e-commerce business.
Dick’s joins other retailers that no longer report online sales separately for similar reasons, although many executives still talk up online progress.
In 2013, Macy’s reportedly became the first major retailer to stop providing online metrics. Their CFO at the time, Karen Hoguet, said the “line between stores and the Internet is blurring so much.” Yet on its 2019 fourth-quarter conference call, Jeff Gennette, CEO, said Macy’s digital business generated $6 billion in revenue in 2019, saw accelerated growth in the fourth quarter and contributes to profitability.
Others who have stopped reporting online and in-store sales separately include J.C. Penney, Kohl’s and Nordstrom. On its fourth-quarter conference calls, Kohl’s officials still indicated digital sales continued to grow at a double-digit pace. Penney’s officials didn’t discuss growth but said online’s margins were improving. Nordstrom didn’t discuss its online performance specifically.
Walmart, Target, Kroger and Home Depot are among the retailers that regularly report online growth, but not penetration. American Eagle, Foot Locker and Williams Sonoma are among those regularly reporting online as a percentage of sales.
- Dick’s Sporting Goods Reports Fourth Quarter and Full Year 2019 Results; Delivers 5.3% Increase in Fourth Quarter Same-Store Sales – Dick’s Sporting Goods
- Dick’s Sporting Goods Inc (NYSE: DKS) Q4 2019 Earnings Call Transcript – Management Updates – Alpha Street
- Macy’s Stops Reporting Online Stats, Blames Too Much Channel Blur – Fierce Retail
- Macy’s Inc (M) Q4 2019 Earnings Call Transcript – The Motley Fool
- Kohl’s Corp (KSS) Q4 2019 Earnings Call Transcript – The Motley Fool
- C. Penney Company, Inc. (JCP) CEO Jill Soltau on Q4 2019 (Earnings Call Transcript) – Seeking Alpha
- Nordstrom Inc (JWN) Q4 2019 Earnings Call Transcript – The Motley Fool
Discussion Questions
DISCUSSION QUESTIONS: Are online growth and/or penetration metrics becoming irrelevant with increasing omnIchannel behavior by consumers? How has the value of the metric changed?
Poll
BrainTrust
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
Ananda Chakravarty
Vice President, Research at IDC
This absolutely makes sense. In an omnichannel world, the physical store is not just a sales channel. It is part of customer journey and serves as a marketing channel. This is why closing stores has animpact beyond the sales traditionally attributed to that store.
These online metrics are still relevant and retailers should continue to track them, however, the blending of channels has made it increasingly difficult to break out results for reporting purposes. I think it’s understandable and reasonable for some retailers to de-emphasize these metrics in their public reporting.
From an operational perspective, I think retailers will continue to track online sales. However for public reporting it is a good idea to consolidate revenues for online and brick-and-mortar. As stated, many transactions are influenced by multiple channels and often start in one channel and finish in another. Sales attribution by channels is blurred. Analyzing revenues by market and customer are better barometers of success.
Online growth and penetration metrics are not only NOT becoming irrelevant, they might be becoming more relevant than ever. That doesn’t mean the retailer has a duty to report them. Understanding the cause and effect of investments in brick-and-mortar versus investments in online is important. And yes, it may be very difficult to determine how an investment in one channel affects the other. But if a given strategy or tactic is working, the retailer is under no obligation to share that information. Internally they might be scrambling to understand the “why?” but that’s their proprietary information to to deploy and disclose as they deem appropriate. Cause and effect is always relevant.
I don’t know why anyone would report online progress separately, unless it was notably underperforming in prior years.
To us, it’s just another comparable channel.
I suspect that some retailers were reporting it seperately because the relatively high online growth rates looked impressive and distracted attention from weak same-store results.
I’m with Mr. Belitsky of Dick’s. Retailers should watch sales carefully, but attempting to give credit to one channel or another is increasingly arbitrary, particularly as stores take over a lot of order fulfillment.
The retail world has moved away from treating online and in-store as channels independent from one another. Customers do not think of shopping one way or another, they think of shopping at Dick’s Sporting Goods or another brand, so why should retailers constantly focus on reporting one against the other? This type of reporting was valuable as online retail was getting started and it was important to show that a particular retailer was on trend with the new development. For a long time, we have talked about breaking down the barriers within retailers and getting the whole company to focus on what is the best way to serve the customer and not on individual channel success or failure and in particular the incentives for those running those channels at the cost of total business success.
This can only be a good thing. Let’s focus on what is important, reflect how customers shop and not drive even wider division that is so harmful for a retail business.
By reporting online sales separately, retailers are emphasizing them and thereby artificially influencing them. Consumers don’t think in terms of channels, they think about getting what they want in the best way. One day that might be online, another day it might be in-store. Track them – yes. Report them – no.
Retailers must have a solid pulse on what is driving their sales. They cannot get a clear and actionable picture of their business, either backward looking analysis or forward looking guidance, without incorporating online consumer activities. Whether or not they report it is a separate matter and each will decide the pros and cons and considerations for financial market expectations.
The consumer doesn’t think or behave in channels, rather the consumer thinks and behaves situationaly, based on convenience, value and time. The current period of the coronavirus is shifting consumer demand from in-store to online and the ability to efficiently and speedily deliver to the home. So internally measuring and tracking online metrics is an absolute must; and while financial analysts will want transparency into these, each retailer will determine what and how much to share.
Online options wooed sellers by offering rich metrics. Except we have now learned those metrics are merely numbers and rarely offer insight unless very carefully controlled. (The NPS being the worst of the bunch — highly hyped, offered to investors, and generally of little meaning.)
It is good to see companies beginning to finally wise up.
Makes sense to me — it’s only a matter of time until the penetration is 100 percent anyway, if it isn’t already. As David stated, it’s more important to understand where your customer is headed next than count on online sales — that’s just standard operating procedure now.
I can only hope more retailers follow the examples set by Dick’s and Macy’s; Nordstrom and Kohl’s before them. It is impossible to effectively measure and report the total influence of stores on digital sales and digital channels on store sales. When we treat our sales channels holistically, we can make much better decisions about our overall performance.
The quality of a sale over time is an important indicator of future sales. The margin-eating distinction between online sales and other channels within the same retailer is returns. Consistent and now deemed normal return rates of 25 percent to 40 percent and higher. It is a fact. Internally retailers know these numbers will continue to be high as no technology solution has ever reduced the now two-decades-old online return rates, especially in apparel. Returns pack a double punch; free returns/the cost of processing the return and then in many cases how to dispose of the return.
“Irrelevant” is probably too strong a word. Obsolete is closer to the mark. As the old saying goes, you can only manage what you measure, and metrics like margin, for example, don’t lose all their importance online. That said, Dick’s is right. One of the obvious flaws of “omnichannel” thinking is that channels don’t figure into consumer behavior. BOPIS is a perfect example. It’s one action for a consumer across at least two “channels” for most retailers. The same could be said in reverse about showrooming. Lots of shoppers go to a physical store, touch and feel, and even try on goods, and then go home and buy them online. So how do you calculate the store’s contribution to a “purely” online transaction? The truth is we need metrics and measures that mirror consumer experience and behavior, not Industrial Age engineered productivity standards.
Most brick-and-mortar store employees are reluctant to encourage their in-store customers to shop online, for fear of losing yet more of their store traffic and sales, but store employees are the most knowledgeable, passionate brand ambassadors, and helping the customer to shop online actually results in more frequent visits to the stores, and increased sales on all channels.
Regarding the survey: Attribute e-commerce sales within a store’s catchment area to the store itself. The store’s presence supports not only their in-store traffic but the sales that happen online within their geographic area. If you close a store that’s struggling, e-commerce sales in that area will plummet. There’s a symbiotic relationship between physical and digital retail that new entrants to the retail space understand natively, but traditional brick-and-mortar retailers have been slow to adapt. Now is the time to credit each store with e-commerce sales that happen within their area. It will encourage stores to talk about shopping online, then incentivize and recognize the contribution they’re making to the overall business in a new and simple way.
If you can’t measure it, you can’t grow it. Online metrics are valid but shouldn’t be used against brick-and- mortar performance as a “this vs. that.” They are important on their own and powerful as a total rollup. I believe the underlying issue is the inability to merge the online and in-store customer data to have a better understanding of how one influences the other on a transaction level. They can’t trace the path to purchase so, rolling it up provides an easy solution to total performance but not a competitive insight to channel performance. This is a database structure and technology problem that will soon be solved. Companies have an overwhelming amount of data that is unactionable, duplicated, and only used for marketing.
To fine tune any business you have to measure where you should place resources. While shopper purchases are the result of a combination of activity, each retailer’s customer journey map will indicate where shoppers are interacting along the way. Based on that a retailer can fine tune how to deploy resources to increase the number of shoppers who engage with them.
It is not completely irrelevant, but as online drives offline and vice versa, siloed metrics don’t provide much insight to how a retailer is really doing. Customer acquisition, growth, retention and advocacy by trade area, irrespective of channel, is far more useful as are similar stats (including profitability by major customer cohort). I have a whole chapter in my new book devoted to this topic.
Silos belong on farms. The customer is the channel. Embrace the blur.
Not at all. They just don’t need to be announced or reported, as they outline corporate failures one way or another, and who wants that in their annual reports? A strong online growth might be overwhelming and positive, but also might be a tiny part of the overall business.
To date it was advantageous to announce online numbers because they were growing fast, especially in cases where the business was small to start, as the retailer could accurately claim enormous growth in online as a metric, thus improving share price.
The retailer still needs to track online sales as well as the online-offline ratio, online influence and customer sentiment with online customers. The larger the % of web sales, the more pages it will find in their 10Qs. Omnichannel shift hasn’t changed retail metrics here, the need to transparently share has. For some businesses, the online data is more critical than store sales. Despite the omnichannel nature of customers and difficulty in tracking, internally retailers must be able to break out sales by channel and influence to improve.
What is shared with Wall Street is a subset of what is tracked internally. I’m with Dick’s (and the others) that no longer breakout ecommerce sales; that’s the right move when assessing the company value. But what you measure moves. Internally retailers should be tracking every online (and for that matter in-store) metric they can get their hands on to make sure they’re continuing to drive the results that matter.
All numbers must be considered to get the total picture. Looking at all numbers helps you spot trends and opportunities. You don’t see a doctor for a full check-up and expect the doc to skip taking your pulse or your blood pressure. You want it all.
I think looking at online sales metrics is important internally to measure returns on investment in the technology and its impact on supply chain. However, when it comes to reporting financially that’s a different story because the breakout and comparison becomes difficult.
Given the massive investment in e-commerce infrastructure and support, not reporting the financial impact seems odd. Using advanced analytics, it is possible now to attribute revenue to the site as part of a multichannel customer journey. I believe that companies are not sharing the information to avoid giving out competitive information, and also because the investment in e-commerce may have a poor 1-yr ROI, even though the long-term payout would be hugely positive.
The lines do continue to blur between online and in-store given the rise of BOPIS at Walmart and elsewhere. Walmart counts BOPIS in its online sales. Grocery BOPIS at Walmart is a big reason for the strong e-commerce sales growth in the past two years. All consumers care about is getting the products they want at the price they want, when and where they want. Those retailers that survive will be the ones who deliver on customer demands, that could be in-store or online, but it’s more likely to be omnichannel.
We actually ran a project last year in our Retail Practice to define a more modern set of sales metrics for brick and click retailers. Most of what we decided came down to moving from metrics like separate same store sales and digital sales to a consolidated view by selling square footage. So for instance sales/sq ft, capital expense/sq ft, operational expense/sq ft, gross margin/sq ft, net margin/sq ft. That fundamentally changes the equation as super large brick and click retailers like Kohl’s keep the number of stores but repurpose ‘000 sq ft of store space by leasing to adjacent business like Aldi. Even that is not perfect as we start to move into new fulfillment mechanisms like micro distribution centers in urban areas. Maybe it makes more sense to look at a store as a direct to consumer fulfillment space and measure fulfillment square footage instead of selling square footage.