2004 Retail Performance Figures in the US
Would you like to compare your profitability and operational skills with some of America’s leading chain retailers, as well as with better than average hardware retailers, lumber/building material dealers or home centres?
Each year, Do It Yourself Retailing magazine in the US compiles operational figures for all three classes of retailers, plus some of the leading publicly owned retail chains. This article excerpts some of that data and compiles performance figures so that you can insert your own figures and make a comparison.
In 2004, the industry reached an estimated $247 billion in sales, up from $217 billion the year before. 2005 was projected to reach $270 billion. Much of 2004’s volume was concentrated in three chains – Home Depot at $73 billion; Lowes at $36.4 billion and Menards, an estimated $6 billion plus.
In a dramatic turnaround over the past 25 years, the hardware industry has become chain-dominated, with $130.6 billion in sales originating among the top 10 chains. Until Home Depot came on the scene, the industry had never been chain-dominated, though chains like Lowes had had much smaller market shares for decades. As a group, independent retailers held major market shares for many years. In 2004, the top 10 chains enjoyed a 53.2% market share, although they operated only 11% of the total number of retail outlets. One of the most interesting aspects of the magazine’s data is its emphasis on the top 25% of stores, the ‘Profitmakers’. Those high-profit stores achieve outstanding results, compared to overall industry averages. It is toward those standards that retailers should compare themselves.
Things To Note
As retailers know, minor improvements in several elements of retailing can lead to major changes in profitability, and this is demonstrated convincingly when comparing the performance of the Profitmaker stores with the rest of the industry.
For example, employee performance is slightly better and expenses are better controlled (probably mostly employee costs) so overall profitability is much greater.
What is most impressive, however, is the comparison of the publicly owned chains compared with the Profitmakers. Home Depot and Lowes are achieving higher gross margins, better sales per employee, higher stockturns and lower expenses. All combine to vastly exceed industry averages and even those of theProfitmakers.
Comparing Home Depot and Lowes, Depot clearly is the winner, though its stock does not reflect this better performance compared to Lowes. It also is interesting to realize that since Bob Nardelli took over from the founders, Bernie Marcus and Arthur Blank, Home Depot’s gross margins have steadily increased and now exceed 33%. Lowes is following Depot’s lead and increasing its own gross margins to 33% or more, despite the fact that both chains are selling major appliances, typically a lower-margin category.
Looking at privately owned lumber-building material margins and those of BHMC, the publicly owned $2 billion chain, gross margins reflect the fact that lumber-building material products make up the bulk of their sales, inasmuch as gross margins are so low compared to Depot and Lowes. That’s why firms like BHMC and 84 Lumber, which is privately owned, continue to thrive serving the professional customer. These firms compensate for their lower margins by turning their inventory much faster than Depot and Lowes,and as much as five times faster than the average hardware store, so their GMROI is outstanding, despite the low margins.
By Bob Vereen
|PROFITMAKER PERFORMANCE FIGURES|
|RETURN ON ASSETS||16.70%||18.20%||18.70%||$|
|*GMROI is determined by dividing gross margin by inventory x 100|
|PROFITMAKER PERFORMANCE FIGURES|
|TOP 3 PUBLICLY OWNED CHAINS||Home Depot||Lowes||Blg Mat. Hold.||Yours|
|# OF STORES||1,890||1,087||60||?|
|AVG. SQ. FOOTAGE||106,000||114,000||11,000||%|
|TOTAL SALES||$73 billion||$35.4 billion||$2 billion||%|
|SALES PER STORE||$38.6 mil||$33.5 mil||$33.3 mil||x|
|*Sales are related to store sq. footage, but these stores have big outside “yards”.|