October 27, 2008

How The Economy Impacts Gap Comp Store Sales

Maybe you've heard about the implosion of capitalism? Banks did wild things, salaries didn't increase, we borrowed against our homes, and now the infection spreads across the globe.

The implosion of capitalism is reflected by the S&P 500 index. We can measure the change in S&P 500, year-over-year, and compare it with the year-over-year change in sales at the company we work for, year-over-year.

Let's use Gap as an example.

The image demonstrates a relationship (not perfect, but directional) between changes in the S&P 500 and Gap comp store sales.

If the S&P 500 drops by 20%, Gap comps drop by an average of 7%.

If the S&P 500 is flat, Gap comps drop by an average of 4%.

If the S&P 500 increases by 20%, Gap comps drop by an average of 1%.

The relationship only has an R-Squared of 31%. But this is good to know, folks!! It suggests that the economy is responsible for about 31% of the change in Gap comps, while issues controlled by Gap employees account for 69% of the change in Gap comps. In other words, Gap management plays a bigger role in the success of the brand than the economy plays.

Ultimately, this lousy economy drags Gap comps down by maybe six points.

As Executives, we have to communicate a message of hope to our employees. The goal should include a ten percent improvement, so that when the economy drives the business down by six points, we still achieve a four point increase. Improvement is achievable!

Every one of us can run this analysis for the businesses we work at. S&P 500 data is freely available, and our own annual sales performance (retail, online, telephone) is freely available. The x/y non-linear regression fitting software (Curve Expert) is freely available. Go analyze your business, and feel comfortable with the notion that you still control the destiny of your brand!

2 comments:

  1. Out of the box posts like this are why we love this blog.

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  2. Thank you for the nice comment!

    ReplyDelete