SSG- The Most Important Metric in Retailing
Retailing is a straight forward business model wherein growth is primarily driven by continuous addition of new stores. And the ability to add new stores is dependent on two key aspects-
1. Retailer’s Right To Win
Proposition to add new stores makes sense only when the retailer can generate revenues from the new store. And this revenue generation from new stores is dependent on the demand of end products and what value one is providing to its customers to capture a part of that demand.
But in a retailing business it is extremely difficult to provide differentiation in the end products that one is selling to its customers as the retailer is not producing the product. Further, the products are not exclusive to any retailer and thus a consumer is largely indifferent in terms of where it should buy the product from.
And thus, a retailer has to find alternate ways to provide a value proposition to its customers; some common ways include lower & better pricing of end products and better service & retail experience.
2. Existing Store’s Growth & Profitability
Addition of new stores is heavily dependent on how well the retailer runs its existing stores, because the margins & cashflows from the existing stores is what will provide the retailer the resources to keep adding new stores on a sustainable basis.
The key metric here is that of SSG (Same Store Sales Growth). SSG is basically how much growth a retailer has seen from its existing stores (existing stores are commonly defined as stores which are >1 year old). And the reason why it is important is because new stores take time to mature and during initial years have lower margins and lower ROCEs. And thus, if a company adds too many stores too quickly, it would see its overall margins and ROCEs deteriorate. Additional growth in existing stores is margin & ROCE accretive as the costs for operating a store is largely fixed. And thus, SSG is what provides the fuel to cushion the lower margins & ROCE of new stores.
This concept of SSG can be explained from the following examples-
A. Jubilant Foods
FY13-17, Jubilant Foods added new stores at a very fast pace, but there was hardly any SSG to support this expansion and thus the overall margins & ROCEs at company level went for a toss
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