Every quarter and, for most restaurants and retailers, every month, same-store sales (SSS) numbers are released. SSS growth measures sales at locations open for at least a year and excludes sales increases attributed to current openings (also known as new store sales growth). For purposes of reporting, SSS are also know as comparable-store sales or comps.
But, what if a new store doesn't fully mature in 12 months? The process of that new store reaching maturity in year two or year three helps boost the SSS figure, while sales at older stores may not be growing at all or are declining.
This is a very important consideration for companies that are transitioning from aggressive growth into slower or steadier growth. As long as they can open a greater number of stores year after year, the SSS or comps will look impressive. But every company's expansion plan reaches an inflection point - they're still growing, just not as fast. This has two effects.
- First, opening fewer stores obviously translates into smaller new store sales growth.
- Second, having fewer stores entering those productive years two and three also lowers SSS or comps.
The combination of slower new store growth and lower SSS or comps can send overall growh and the stock price plunging quickly.
From 1995 to 2000, Office Depot averaged 14 percent per year in new store growth. However, the office supply store business quickly became saturated when competitors Staples and Office Max also engaged in aggressive expansion plans. In 1999 and 2000, the last two years of its rapid expansion, Office Depot's total SSS increased 6 percent and 7.5 percent. In 2001, new store growth stopped and SSS declined 2 percent; the stock price sank below $10 from a high in the mid $20's in 1999.
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