Same Store Sales
I never heard the term same store sales until a couple of years after I started Juice Press, when we took on some sophisticated investors, including the great Ken Langone, cofounder of Home Depot and a major donor to NYU Langone. At one of our board meetings he asked me a direct question: how are your same store sales? I looked at the spreadsheet and saw that we were trending negative, which meant that compared to the previous year, the same store was doing less business. He said to me, if that trend continues, you won’t have a business.
Same store sales growth, meaning growth inside a store you already own, is an imperative, especially if you are raising money, because it is one of the first parameters smart investors look at. It matters less if you are running your own business, and I will explain why.
Let’s suppose I have store number one on 69th Street and it does three million dollars a year. Store number two opens on 86th Street and it does two million, but one of those two million came out of the first store. I cannibalized store one by opening store two. I gave the customers in the middle two choices instead of one. As long as the fixed costs stay inside the model, I can look at it and say, before, I was taking three million dollars from the customers in this area, and now I am taking four. I have twice the rent and in many cases twice the labor, but if the numbers work and the margins hold, I have more money in my pocket.
It does not work like that in a chain, especially where there are investors who want to see the growth potential and the obstacles. In the perfect business you can open stores right next to each other and the trend still goes up no matter what. That is an unbelievable business, and it is not usually the case.
So when we talk about same store sales growth, understand first that there are things you can do to inflate the number so it looks like you are growing. I could spend a ton of cash I never spent before on advertising and marketing. I spend two hundred and fifty thousand dollars to advertise a store, and the store grows by two hundred and fifty thousand dollars. All I accomplished was moving the top line. Anyone who looks closely will say, your expenses went up by exactly what your sales went up, so what did you really do?
It is fine to spend money like that if you are making a bet that you will turn a corner. Say I spend the two hundred and fifty in year one, sales rise, expenses rise with them. In year two I spend nothing on that campaign and the sales hold where they landed. Now I am flat year over year, but I am taking in more money than I was before, and I keep it. You have to risk money in business, but it has to be a risk you believe converts into direct sales, not touchups of the brand or items on somebody’s wish list. This requires spending discipline.
The best kind of growth is the kind that happens without spending money, which is word of mouth. More people hear about you, more people walk in. And the thing that quietly destroys same store sales is a bad experience with the product or the service, because then you lose customers you already had. So you affect same store sales two ways. Defensively, by protecting the product and the experience, and offensively, by going after new customers and new reasons for people to come in.
In some businesses the playbook is to run a sale that brings in new customers. In our business we might say, buy this juice and get this cookie for free. Now the customer meets the cookie. The next day they come in and they buy the juice and they buy the cookie. You introduced a new product, the customer liked it, and they came back and paid for it. That is an effective spend.
Or you look at your own retail business and notice that between six and eight in the evening the refrigerators are half empty and customers are coming in to find their favorite product missing. Simply doing a better job stocking those refrigerators at that hour increases sales with no increase in cost. Every industry has little hooks like that. I use food and beverage as my example because it is the most obvious one.
Another way to grow a store is to look at the data. If you do a thousand dollars between six and eight when you close, test whether you can do twelve hundred and fifty between six and nine. Then figure out whether that extra hour meaningfully raises your labor. If it is a small increase, you are getting more sales out of space you were already paying rent on. You keep playing with that. Of course there is a fine line, because more hours means more people, which means more management to hire and train, and now you have to make sure everyone gets the hours they need in the shifts they have. That requires somebody studying labor every single week. Nothing is free in business, because everything requires time and everyone is getting paid by the hour. When you think about a change you are about to make, calculate the costs hiding below the surface.
Another way to increase same store sales is simply to raise prices. This matters enormously in large chains. If Starbucks raises the price of an item by five cents across tens of thousands of stores, they are talking about millions of dollars of annualized growth. The problem with a price increase is that you can price yourself out of the market. If the product gets too expensive you can do the opposite of growing, and sales recede. Even with a five cent increase and a slightly better margin, the better move is usually to capture the customer first, and then let a totally different team figure out efficiencies on that item so you save money on it while you sell a lot more of it. Now you get the volume and the margin improvement together.
When you try too hard to squeeze every penny out of the margin, be careful not to hurt the quality of the product or the service, which is the most common thing that happens. A company changes the vendor for its meat or its tomatoes, thinking it is saving five hundred dollars a month, and the quality drops by a value far greater than what they saved. The customer eventually notices. The holy grail is to never touch your product in a way that makes the customer not want to buy it. You accomplished nothing if you saved money and lost interest.
There is another lever in businesses that already have salespeople, like a car dealership or a clothing store. Train your staff to sell better. Everything else stays the same, the same effort, the same hours, the same rent, but your people are better at selling and you as a company have refined the pitch and improved the way deals get closed. Entrepreneurs and their teams get tired of working on this, so people get lazy, and everybody’s default is to spend money on marketing instead of sitting down and figuring out the grassroots way. The grassroots way is always word of mouth. How do you get people talking about your product? That is the hardest thing to do, and because it is hard, most people ignore it and reach for the lever that costs cash.
Health clubs use referral programs. They tell a member, bring a friend, and if the friend joins, you get a free month. If membership is two hundred a month, the club has decided a new member is worth a two hundred dollar credit. Some businesses can do that. Think about a yoga studio with a class that fits twenty six people and only ten show up. Filling those sixteen empty seats costs them almost nothing, so it is worth it to say, the next sixteen people who have never been here get a free class. It goes only to new people, so it does not eat into existing sales.
Understanding this nuance matters. In the food business, to do fifty dollars of sales I have to hand over five real items every single time. I do not have empty seats sitting there costing me nothing. So margin is important even on a promotion. When we run a two for one, we are doubling the cost of goods on that sale and hoping a lot of new people come in to take advantage of it, but the people who take it are usually the regulars, because how else would they have heard about it. A better version is to say, is this your first time here? Here is a ten dollar gift card you can use on any purchase of twenty dollars or more. Now you are talking to a new customer and giving them essentially half off without saying half off. The regular is not angry, because they understand it is a promotion for new customers. At the same time, you owe the regulars promotions of their own. The promotion becomes a creative factory, and testing it is a job that runs all year long.
Adding new products to the lineup also increases sales, if you add the right ones. The right way to think about products in any industry is to ask what the main thing is that people come to you for, and then what else you can attach to it. The wrong way is to add an item that just gives the same customer a choice between A and B. Now you have doubled your production and you have not increased your sales. If every customer buys both A and B, you have something. In many businesses, they buy A or B.
A car company sells a warranty. Nobody walks into a dealership and says, I am not buying a car, I would like to buy a warranty, leaving the dealer to scratch his head wondering why warranty sales are up and car sales are down. The warranty does not cannibalize the main sale, it enhances it. The same with the phone case that goes with the phone, or the camera store with the case, the extra batteries, the lens filters, the extra lenses, a million attachments. The genius in any business is figuring out what will always ride along with the main purchase. We get stuck because we only try to figure this out under pressure, when it has become an absolute necessity, and it does not happen overnight.
If you have an ice cream parlor, what are you going to invent that people also want to buy? Coffee, fine, you have that now. So how do you grow next year? A wall of different cones? Some unique flavors? Tell me something more interesting than that. Add an entirely new line and say, now we facilitate birthday parties. That is another product. Keep looking deeply into your business for things that do not yet exist, real inventions for your category. Do not act like a slave to whatever your industry is already doing. I always remind myself of the Ray Kroc story. He walked into a hamburger business run by two guys who were doing well, and what he saw was the speed of service and the conveyor belt production, and he scaled that.
Companies like that have since used every analysis and every trick in the book to grow same store sales year over year. They know people get bored, so every so often they introduce something completely new, chicken nuggets, a new kind of kids’ meal. They look at the data and say, eighty six percent of our customers are families, but only a fraction of the family is eating, so maybe we do not have the right product for teenage girls. What do they want? Somebody has to go find out.
The first thing you have to decide is how important same store sales growth is to your business right now, and how important it will become. The answer is that it is always important, because you never want a downward trend in anything you are doing. Let a trend like that continue and it will put you out of business. Watch it carefully.
Let me say it plainly, for the economic dummies like myself. Same store sales growth is not the same thing as revenue growth of a chain. You can open more stores and say, look, we are taking in more money overall, and that is what matters. Total revenue does matter. But what is happening inside the stores you already have matters just as much, and in some ways it tells you more, because it is the honest number. Total revenue can climb while every single existing store is quietly shrinking. New stores hide that. Same store sales do not.
It is a far more important parameter than I ever understood at the time. We didn’t have chains in the family art business. We just looked at the sales that year. If sales were down, we felt the pain, but we didn’t have the language for it. We just knew we had to get sales up. It was present moment thinking rather than using past data to decide where the focus needed to be.