In the wake of current economic turmoil sales and profitability have both slowed significantly for retail businesses since last year.   Sales growth for privately held retail businesses has fallen in 2008 to 3.18% from 3.85% in 2007.  A similar trend is evident for publicly traded retail businesses; sales growth was at 3.72% in 2007 and is currently a dismal 0.32%.  Net profit margins for private clothing stores have dropped to 2.88% in 2008 from 3.46% in 2007; for publicly traded clothing stores average net profit margins are currently 5.55%, down from 6.81% in 2007.

With rising prices for food, health care, energy, gasoline, etc., retail customers are left with fewer discretionary dollars to go towards retail spending. Consumers are pulling back on spending and focusing on the essentials. The fall in consumer confidence to near all time lows has caused a general slowdown throughout the economy, which also seems to be adversely affecting retailers. Rising energy and transportation costs are raising expenses in the retail industry, which is placing more strain on profit margins. Competition between retailers is currently intense, with superstores battling on price and direct marketers/online selling increasing competition to stores.

Net Profit Margins of Privately Held and Publicly Traded Clothing Stores From 2000-2008

Sageworks aggregates private company financial data from financial professionals that use our ProfitCents and Sageworks Analyst applications.

Related Links:

http://blogs.reuters.com/summits/category/consumer-retail-07/ - Reuters Summit Notebook Blog - consumer and retail analysis
http://www.nsba.biz/content/1993.shtml - NSBA Small Business Mid-Year Economic Report
http://abclocal.go.com/wls/story?section=news/consumer&id=6397582 - Holiday Retail Slump Expected
http://www.sageworksdatabase.com- Sageworks Data on Privately Held Companies

According to Sageworks’ industry data (shown below), privately-held companies have been taking on more debt relative to their sales and assets during the time period from 2003-2008. Liabilities to sales have climbed steadily from 1.03 at the beginning of this period to 3.30 in 2008.

Sageworks Inc. collects privately-held company data from financial professionals who subscribe to its Profitcents and Sageworks Analyst programs.  When financial reports are run through these programs, the data is collected and stored in anonymity. Industry data is provided in an aggregate format only, and no individual company information is released. Over one thousand reports are run daily, and new data is incorporated into the Sageworks industry statistics each day.

For more information on the increase of business debt and the impact of debt on the economy, visit:

• http://www.financialsense.com/editorials/hodges/2005/0619.html
• http://www.sba.gov/advo/research/rs327.pdf - “Small Business and Micro Business Lending in the United States for Data Years 2006-2007.”
• http://blog.washingtonpost.com/small-business/2008/06/number_of_small_business_loans.html - “Number of Small Business Loans Increase.”