Tale of the Tape: What Retail Benchmarks Show

The Retail Owners Institute(R) has updated the charts and graphs of performance benchmarks for 52 retail segments, and recently posted them on The ROI site. These are the ratios prepared for and used by virtually all lending personnel. We show charts and graphs of five year trends for 6 key ratios for retailers to monitor (Turnover, Gross Margin, Pre-Tax Profit, Debt-to-Worth Ratio, Current Ratio, Return on Assets).

Most users of the Store Benchmark numbers displayed at The ROI are focused on their specific retail segment. Depends on what kind of retail business they have: gift shop? apparel store? hardware store? pet store? However, we have spent some time reviewing all of the segments. What did we discover? Generally, they look awful!

While there are improvements vs LY (going against "soft numbers"), few retail segments are back to even with 2008 performance levels. That Recession, you remember.

Gross Margin and Pre-Tax Profit Trends
After topline sales, what do most retailers pay most attention to? You got it! Gross Margin, and "the bottom line". And sure enough, over half of the 52 segments showed increases in Gross Margins vs 2009; same with Pre-Tax Profit.

Of course, we are going against "soft numbers", since 2009 was so grim.... Comparing 2010 to 2008, a somewhat different picture emerges:

Margins up: for a whopping 2/3rds of the reported segments (35 out of 52), 2010 GM% exceeded 2008 Gross Margins

Profits down: On the other hand, for 34 of the 52 retail segments, Pre-Tax Profits are still below 2008 levels.

The Lenders & the Vendors
Meanwhile, what do the bankers watch? They keep an eagle eye on your Debt-to-Worth ratio. (Their focus is on getting any and all loans repaid.) There are some promising trends here to report!

2010 vs 2009, only 15 retail segments showed increases in the Debt-to-Worth ratio. And that's a good trend! It shows these businesses are getting financially stronger.

And 20 retail segments showed improvements in the Debt-to-Worth ratio vs 2008. (Might be something to that "survival of the fittest" idea. The retailers still here are in fact stronger.)

What ratio do the credit departments at your vendors pay most attention to? The current ratio. It measures your ability to pay your bills on time. The benchmarks on that measure show how tough the retail environment continues to be.

Comparing 2010 to either 2009 or 2008, a scant 23 retail segments (only 44%) showed improvements in the Current Ratio. In fact, as you look at the benchmark trends, note for yourself how many segments have Current Ratios below 2.0 (a C grade).

Inventory Turnover
What really drives these ratios? Inventory turnover. Here again, the overall indicators are not promising. Twenty-six of the retail segments showed declines in turnover. That means more cash is tied up in (old) inventory. And only 17 segments showed increases in turns for 2010 vs 2008.

As Michael Gould Bloomingdale's Chairman noted, "No retailer ever filed bankruptcy because their turns were too high!"

What's the "bottom line" of all this?
Opportunity abounds! Those retailers who can better manage these key metrics of retail financial strength can quickly separate themselves from the more mediocre performers.