US News: How Does Your Store Stack Up?

Bob Vereen takes a look at the 2004 financial performances of some of America’s leading retailers…

Have you ever wondered how you compare with some of the best retailers in the world?

Because so many of America’s biggest retailers are publicly owned, it is possible to develop some financial and operational statistics for them with which you can make your own comparisons.

In this report, we are first looking at five major retailers and their performance in 2004, The five are Home Depot and Lowes in the home centre category, Wal*Mart and Target as number one and number two mass merchandisers, and Tractor Supply as a specialty retailer very strong in hardware and allied lines.

AHJUSNewsAug05Caption: Not surprisingly, Home Depot’s net profit exceeds the other retailers

We also are providing some of the same statistics for three major retail chains operating so-called “dollar stores,” which concentrate on serving low and middle-income consumers with low priced items. Dollar Tree is the only one of the three which sells all products for one dollar. The other two sell products for one two, three, five and under ten dollars. In two of the accompanying spreadsheets, I have provided a column in which you can write in your own figures for last year.

There are two ways to look at your business, as you know. One is to determine your financial management; the other, your operational management. I have set up my spreadsheets the same way.

A Look At Finances

Wal*Mart, the world’s largest retailer, achieved sales of $256.3 billion, far ahead of Target, America’s second largest mass merchandiser. Wal*Mart has made a much bigger commitment to food retailing via its supercentres, though Target also operates such stores and seems to be planning more units with food departments in 2005. Last year, both achieved about the same overall sales increase. Wal*Mart has always advertised its everyday low prices, and this appears to be a justifiable promise in as much as its gross margin is only 22.3%, compared with Target’s 31.2%. Part of that would be attributable to Wal*Mart’s larger food sales, but not all – a nearly 9% difference is significant.

FINANCIAL STATISTICS FOR MAJOR RETAILERS
Column1 Home Depot Lowe’s Tractor Sply. Target Wal*Mart YOURS
TOTAL SALES $73.1 bill $36.5 bill $1.7 bill $46.7 bill $256.3 bill __________
# OF SALES 1890 1087 515 1308 4906* __________
SALES PER STORE $38.6 mill $33.6 mill $3.4 mill $35.7 bill $52.2 bill __________
SALES GAIN 12.80% 18.20% 13.80% 11.60% 12% __________
GROSS MARGIN % 33.40% 33.73% 30.20% 31.20% 22.30% __________
S, G & A EXPENSE 22.60% 20.74% 22.80% 20.90% 17.50% __________
NET PROFIT % 10.80% 9.70% 5.80% 4% 3.5% __________
*Average includes Sam’s Clubs, supercenters, older small discount stores and small Neighborhood Markets

An overview of the financial statistics of some major American retailers

Its SGA (selling, general administration) expense ratio is also lower. However, Target edges Wal*Mart in net profits.

What is most interesting is the fact that both Home Depot and Lowes are today operating with much higher overall gross margins than these two mass merchandisers – and even higher than Tractor Supply, which sells only hardlines as they do.

Both Depot and Lowes have been gradually increasing gross margins over the last few years – Depot aggressively under the management of Bob Nardelli, who replaced Arthur Blank, one of the founders. Under Blank and, earlier, Bernie Marcus, the other founder, the company’s gross margin consistently had been around 27-27.5%. It was those low gross margins which enabled Depot to wreak havoc in the hardware/home centre industry, putting many older, higher-margin firms out of business.

The higher gross margins of both firms now make it a bit easier for other firms to compete with them, as the price-gap narrows. Menards, America’s third-largest chain, which is privately owned, consistently beats the other two on everyday low prices, according to many industry observers.

Menards produces an estimated $7 billion in sales out of its 205 stores, which means it averages about $34 million per unit. Its newer stores are larger than those of either Depot or Lowes, with some as large as 240,000 sq ft. Other statistics for Menards are not available. Perhaps the most interesting figure of all in the financial spreadsheet is that the net profits of both home centres vastly exceed those of the three other large retailers – 10.8% for Home Depot and 9.7% for Lowes.

OPERATIONAL STATS FOR MAJOR RETAILERS
Column1 Home Depot Lowe’s Tractor Sply. Target Wal*Mart YOURS
SALES PER STORE $38.6 mill $33.6 mill $3.4 mill $35.7 bill $52.2 bill __________
AVG. STORE SIZE 106,000 ft 114,000 ft 15,000 ft 126,000 ft 100,000* __________
SLES/SQ/FT $375 $294 $225 $294 $521 __________
SALES/EMPLOYEE $224,923 $228,125 $241,600 $203,000 $213,600 __________
AVERAGE SALE $54.89 $63.43 $39.83 n/a n/a __________
GMROI 240.5 205 136 263 216 __________
SALES-TO-INV. RATIO 7.2 6.08 4.5 8.6 9.6 __________
*Average includes Sam’s Clubs, supercenters, older small discount stores and small Neighborhood Markets

An overview of the financial statistics of some major American retailers

A Look At Operations

Here is where readers can make the most interesting comparisons – sales per store, per employee, average sales, etc. And the figures for Tractor Supply are probably more comparable for the average reader, in as much as its store size and sales-per-store are smaller than those of the other companies.

Wal*Mart is the leader amongst all five firms in most respects. Its sales-per-store and sales per sq ft are definite leaders, reflective in part because it is now the leading food retailer in America, as well as the overall largest retailer.

More interesting, of course, is a comparison with the two home centres and Tractor Supply. Here, despite operating smaller stores on average than Lowes, Home Depot achieves higher sales per store and higher sales per sq ft.

Lowes, however, slightly exceeds Depot’s sales-per-employee and has a larger average sale, reflective probably of Lowes’ longer experience selling major appliances and the fact that all of its stores carry major brand appliances. Depot, by comparison, has been phasing them in on a gradual basis. This year, it is expected that all Depot home centres will carry appliances, though some of its specialty units will not.

GMROI (gross margin return on inventory) is one of the most important and easiest-to-use management measurements. It reflects one’s inventory management as well as margin management. To measure your own GMROI, first determine your sales-to-inventory ratio. Gross sales divided by inventory. For Depot, it was 7.2 times – sales were 7.2 times the size of inventory. That ratio multiplied by gross margin is GMROI.

Tractor Supply’s low GMROI of 136 is about what the average American independent hardware store achieves, according to the National Retail Hardware Association. And while its high-performance stores (top 25%) do much better, they rarely achieve the high performance of either Depot or Lowes.

Home Depot’s sales-to-inventory ratio is well ahead of Lowes (7.2 to 6.08) but it lags in gross margin by just a hair. The result: 240.5 GMROI for Depot compared with 205 for Lowes. Target, however, is the top winner with 263, reflecting an exceedingly fine 8.6 sales-to-inventory ratio and a strong gross margin. While Wal*Mart’s sales-to-inventory ratio is the highest, its lower overall gross margin affects its GMROI.

When you compare your own performance, you can set some goals to improve your own performance, using these large retail chains as your targets.