As indicated by typical sales data, the demand for merchandise has been strong and growing 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 kept stronger in 2018.

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.
• The increased sales have primarily been attributable to e-commerce (typical average 20% annual growth) and the comparable in-store sales have actually declined between 2015 and 2017. However, as indicated by increased store transactions in 2018, traffic seems to be 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 pressure in stores sales between 2015 and 2017 in US market as indicated by dada of companies in this sector that growth in comparable store sales slowed down (or went negative). However, it seems that things made a turnover in first half of 2018 when companies generated a large store sales growth of 3%, driven ecommerce and traffic/transactions, compared with a flat growth prior year. Sales from e-commerce seem to have been increasing strongly in the past several years. It seems that the growth in comparable sales in international market has kept higher during the same period. It seems that companies have still been able successfully to increase the sales by opening new stores.

As a result, we have seen slight changes in the averaged gross margin of the typical companies (around 27% in 2018). The typical averaged operating margin went down by about 100 basis points to about 5% due to an increase of about 100 basis points in SG&A as percentage of sales (about 22) as a result of raised wage.  

The typical average enterprise price/EBI ratio is: 23(interest/EBI ratio of 17%) and stock price/sales ratio is about 0.58.

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