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It's Better to Be a Retailer than a Supplier

Don Hogsett -- Home Textiles Today, October 2, 2006

New York — It will come as no surprise to the nation's home fashions producers that it's better to be a retailer than a supplier today.

And if you are going to be a retailer, it's far better to be one that sells goods at lower prices. This year's HTT Retail Report Card turns up the fact that three out of every four dollars spent at the 27 retail companies in this year's canvass were spent in channels of distribution which essentially didn't exist 27 years ago, when this newspaper was first published — discounters, off-pricers and warehouse clubs. One channel alone, warehouse clubs, and two retailers in it, Costco and Sam's, did almost three times as much business last year as the department stores in the Report Card.

Otherwise, it was pretty much business as usual last year, with sales and profits alike for the 27 retailers in the Report Card advancing at a double-digit pace in a solid, if not especially noteworthy, performance. Composite sales for the group, up 10.0%, came in slightly ahead of last year's 9.4% gain.

But after paying down interest expense, rethinking inventory levels, paying for acquisitions, and getting squeezed by markdowns as cash-strapped consumers kept their wallets in their pockets, profits — while still handsome — were a lot harder to come by than they had been in the past.

Indeed, profits for the HTT Report Card composite rose at a slower pace than the year before, by 11.4%, compared with a 14.6% increase in 2004.

And those profit numbers for both years pale alongside the two preceding years, 2002 and 2003, when earnings soared by 35.4% and 47.5% respectively, in what now looks like a golden age, when American consumers were lulled by falling interest rates and never gave a thought to the cost of filling the tank or heating their homes.

Reflecting the constantly shifting retail landscape, skewed toward ever lower prices to lure shoppers through the doors, the vast majority of sales in this year's edition of the HTT Report Card were tallied at the nation's all-the-time-low-price retailers — Wal-Mart, Target, Kmart (Sears Holdings), Dollar General, Family Dollar and Fred's. Combined, those six retailers alone generated $433.7 billion in sales, about 60.1% of the composite total of $721.2 billion done by all 27 retail chains in this year's ranking. But profits were another story. While sales in that dominant channel rose by 8.2%, profits were quite meager, edging up a skimpy 0.3%.

The second biggest channel in this year's Report Card — with just two players, Home Depot and Lowe's — generated 17.3%, or $51.9 billion, of the total sample of $721.2 billion.

With Americans trained, like Pavlov's dogs, to respond to low prices and constant sales events, it's not surprising that the third-most-important channel last year was warehouse clubs, contributing $51.9 billion in sales, or 7.2% of the total in this year's Report Card. What makes that number all the more remarkable is that it was done by just one company, Costco. For purposes of compiling the Report Card, results of Sam's Clubs are included along with parent Wal-Mart, since the Sam's operation provides only sketchy numbers.

But add Sam's results to Costco's, and those two companies generated $91.7 billion in sales last year, or 12.7% of all retail sales done by all 27 companies. To put that number into perspective, that means that just those two companies, Costco and Sam's, did almost three times as much business as the entire full-price channel of four department store groups — Federated, Dillard's, Belk and The Bon-Ton — which put up a relatively slender $34.2 billion in sales.

And that's not to mention another channel that targets budget-minded consumers, the off-pricers, including TJX, Ross, Big Lots, Stein Mart and Tuesday Morning. That channel put up $27.8 billion in sales, not that far behind the full-price retailers like Federated.

Underlining the seismic shift that's taken place in retailing — toward lower and ever lower prices — those three channels that target the jobless, the maxxed-out, the poor and the penny-pinchers, accounted for three out of every four dollars spent at those 27 retail companies in this year's HTT Report Card, a staggering 76.7% of the total of $721.2 billion. And that's for channels of distribution that barely had a toe-hold just three decades ago, when Wal-Mart was still as southern as fried chicken and Krispy-Kreme, nobody knew what a warehouse club was, and few consumers felt the need to seek-out off-price anything.

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