As indicated by typical sales data, the demand for merchandise has been strong but the growth was fluctuated in the past several years. It seems that sales performance of companies have been increasingly related to the performance of its e-commerce. Developing new areas/stores, while determined by companies’ ability to control costs, will play more important roles in companies’ performance in in-store sales while it seems the traffic has regained its growth in 2018 after a few of years’ sluggish.

Sector’s current, trend, causes behind trend, and future

Current and Trend

• Generally, the demand for merchandise goods has been strong and growing in North America area in the past several years as indicated by the continuingly increased comparable sales from typical mass merchandise chains.
• Growth in sales slowed down in 2016/17 for major national mass merchandisers but has rebounded since 2017/18 as indicated by changes in the same store transactions.
• The slowing traffic seems to have a larger impact on smaller merchandisers in terms of sales.
• The sales increase had primarily depended on e-commerce (typical average 20% annual growth) and the comparable in-store sales had actually declined between 2015 and 2017. However, as indicated by increased store transactions in 2018, traffic seems to start driving sales growth as well.
• Growth in sales from international market has kept strong during the same period.
• Undeveloped and unreachable areas seem to be contributing to keeping demand strong as indicated by the fact that companies have kept opening new stores.

Causes behind the trend

The radical factors behind the trend in this sector may include general economic and demographic changes, or growth in household income.

The factors, such as changes in shopping habits, competitive price of online products, or lowered shipping costs, behind the unfavourable climate of retail industry may be also behind the long –term trend of slowing down traffic/transactions among mass merchandise stores.

Increasing consumers’ demand driven by macro-economy/purchasing power or the increasing marketing spending stimulated by money saved from the tax act of 2017 or reduced competition due to massive closure of stores and thus possibility to raise price may be playing the role in rebounding sales in 2018.

Industry Future

Supported by favourable factors from macro-economy and demography, demand in this sector may continuingly go up. 

General Financial Performance of Companies In the Sector

It seems that there has been a downward trend in stores sales as indicated by dada of a typical retailer in this sector that growth in comparable sales slowed down straight in the past several years while the company has kept closing under-performed stores. However, in the second quarter of 2018 we see rebound comparable sales of 1.6% growth.

As a result of cost-cutting, we have seen small increase in gross margin of the typical company (around 41% in 2017). The typical operating margin was at about 6% with a SG&A as percentage of sales of about 35% in 2017. However, due to more markdowns and increasing operating expenses, we have seen a declining margin in 2018 as indicated by about 40.5% gross margin and 5% operating margin.

The typical average enterprise price/EBI ratio is: 12 (interest/EBI ratio of 5%) and stock price/sales ratio is about 0.4.

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