15th January 2013
The Daily Mail reported on the row last week that saw Sainburys claiming its sales would have been higher if it had used the same basis as Tesco, up by 1.4 per cent rather than 0.9 per cent.
In a note sent to analysts it added that Tesco had not kept to international accounting standards guidelines or at least not with its headline figure.
But the accountants’ trade body doesn’t seem to have any patience for the measure as it is currently constituted. In a new report Audits Insights: Retail it says that retailers should outline the basis of the calculations and any actions taken to remove distortions. But it would also like to see a consistent basis for the calculation.
Retailers can for example remove ‘distortions’ that may impact on the figures. That could include stores that are being refurbished but some can even change the period covered. Like for like doesn’t exactly sound like the correct term.
Ernst & Young head of retail Julie Carlyle says: “Transparency around judgements made could benefit investors and standard method for calculating like-for-like sales would create a far more reliable tool for decision making.
“The trend of heavy discounting has changed the relationship between sales data and profitability. More sales don’t necessarily mean higher profits. Sales volumes can be driven at the expense of profitability.”
In a related point, the reports adds: “Investment in IT and data management may not be easy in the current environment, but holding back is likely to prove a false economy in the long run. The practical impact of underdeveloped systems includes increased difficulty in understanding profit drivers by channel, in meeting the challenges posed by global supply chains, and in managing working capital across the business.”
This arguably has even more significant implications. We have seen the demise of HMV this morning at it was unable to meet the threat from online rivals. The report states that it is unlikely to happen to supermarkets – no-one is going to be ordering their yoghurt through the post, but online is now an important part of the mix. Managing the data across channels is hugely important. It is profits not sales that retailers really need to be thinking about. it is something that investors need to bear in mind too.