Some Retailers Struggling, Need Major Boost From Holiday Season

“Overall, privately held retail companies in the U.S. are performing moderately well,” says James Noe, an analyst for Sageworks.  “They’re growing sales at a fairly healthy rate, and their typically thin profit margins are higher than we’ve seen in past years.”  

What is concerning, Noe continues, is that their rate of revenue growth has been slipping over the past few years. “Looking at all industries, the average privately held company has continued to see its rate of revenue growth stay consistently high over the past five years, and in some cases, companies have been able to drive that rate of sales growth even higher,” he said.  Retail, on the other hand, has not been able to sustain the same level of sales growth.  The National Retail Federation has said it expects holiday retail sales to grow at a lower rate this year, so we might expect to see the overall rate of revenue growth continue to slip for privately held retail companies. 

“Most privately held retailers rely heavily on the holiday shopping season to generate revenue and income,” Noe says. “We don’t want to paint too gloomy a picture here; these companies are doing ok right now. But if holiday sales are tepid this year, it might signal problems for retailers in the New Year.” 

Retail Report Card- 12 Months Ended 10/23/15

In the chart above, Sageworks has included revenue growth and net profit margin figures for 10 sub-industries of retail.  These sub-industries were chosen because the companies that operate within them tend to see a lot of their annual income and revenue come through during the holiday shopping season.  Analysts at Sageworks have assigned a “grade” for each of these industries, based on their revenue growth and profitability over the past 12 months. The analysts took two main factors into consideration when assigning the grade. First, they looked at how these sub-industries are performing as compared to the average retail company. Second, they looked at their recent performance as compared to previous years.  

Furniture stores stood out in particular, outperforming the average private retailer in both profitability and revenue growth and outperforming their own years’ previous figures.  Companies that focus (exclusively) on e-commerce and catalog sales (defined above as “electronic shopping and mail-order houses”) also stood ahead of the pack, growing sales at a faster rate than virtually any other type of retailer; however, they’re struggling to keep margins high, with net profit margins dropping from excellent (6.5 percent for the twelve months ended 10/23/14) to average (3 percent for the twelve months ended 10/23/15).    

Companies in the sporting goods, hobby, and musical instruments sector could certainly use a boost this holiday season.  Despite seeing some of their highest net margins of the past five years, these companies have been barely growing revenues year-over-year; just a few years ago they were approaching double-digit revenue growth, but this rate of growth has been rapidly sliding.  Even though jewelry, luggage, and leather goods stores are also struggling to grow revenues, these companies were actually seeing a revenue contraction at this point last year. “While their rate of growth is still drastically lower than what they’ve been able to do historically,” Noe says, “A minor increase in sales, however small, is actually good news for these companies after the revenue contraction last year.”