The 2002 numb-ers are in - Viewpoint - Annual Industry Report

DSN Retailing Today, July 7, 2003 by Tim Craig

When you think of the term mind-numbing, the first two things that come to mind this time of year both have to do with temperature. For one, mind-numbing best describes the feeling of suffering through the season's unbearable heat waves. One week straight of 108 degrees in Phoenix, for example. That's mind-numbing.

When it comes to beating the heat, mind numbing is also what a lot of your kids are going to feel this summer when jumping for the first time into a glacier-fed mountain lake, or better yet, biting off too much of a younger sister's ice cream cone. Definitely mind-numbing.

And since you're reading this issue of DSN Retailing Today, you also know that early July coincides with the arrival of our Annual Industry Report, the yearly scorecard of America's leading retail companies. Which means, above all else, that this is the season for mind-numbing statistics.

Researching and assembling all of those stats--a collective effort by the entire DSN Retailing Today staff--is enough to numb anyone's mind. But now it's up to you, as the reader, to pour over the numbers, analyze the commentary and draw some conclusions of your own. And to get the numbing started, here's a highlight of some of this year's most intriguing between-the-lines statistics.

For starters, Wal-Mart did in 2002 what many suggested was simply not possible. The thought of a $218 bil. retailer growing at nearly twice the rate of the industry average was enough to keep the naysayers busy. But at the end of 2002, Wal-Mart had the final laugh, increasing operating earnings by more than 14% by adding nearly $27 bil. to its corporate top line.

In a sharp contrast to Wal-Mart's performance, once-mighty Kmart posted its worst financial performance in its 41-year history. In addition to losing more than $2 bil., its soft sales dropped it out of this year's top 10 ranking, as longtime rival Target leapfrogged it to become the nation's second-largest discount department store operator.

Gap Inc. may not be setting Wall St. on fire, but its performance in 2002 is nothing short of monumental. For a chain that entered the year under extreme criticism for its commoditized offerings and lack of originality, Gap pumped Herculean efforts into reviving its Old Navy brand-to the tune of a 14% bump in '02 sales.

In consumer electronics, Best Buy did what Best Buy does best. Sales at CE superstores jumped 21%, leading to an increase in operating income of more than 42%. As it turns out, though, it would be a much-needed cushion, because although sales were strong in consumer electronics, the bottom fell out on Best Buy's recently acquired Musicland business. By year end, the company's experiment in mall-based music retailing had bled more than $238 million off its bottom line.

Overseas, Ahold's much-publicized accounting scandal led to its withdrawal from the South American market, leaving a $4.5 bil. retail void in its wake. But the chain's woes didn't stop there. It exited markets in far-east Asia, purged its senior management at its home office in the Netherlands and is doing everything to save its U.S. retailing operations from the stain of a $900 million corporate accounting oversight.

And then there's the rest of the industry, whose accomplishments are too numerous to mention here. Among the standouts, however, are Costco's 14% jump in operating income, Lowe's more than $4.3 bil. increase in sales, the breaking of the $10 bil. sales threshold by the military's retail exchange posts, Amazon's celebration of its first annual profit, Fred's joining the $1 bil. sales club, and the list goes on.

For its part, 2003 is shaping up as a year with significant highlights of its own. The Sports Authority and Gart are joining forces; Fleming is retreating from the retail business, and talk is in the air of a possible takeover of the No. 2 CE chain Circuit City by Mexican investor Carlos Slim. But the big fish in the retailing rumor ocean-the one that stands to alter the industry in a significant way-is the prospect that private investor Edward Lampert could pull off the merger of Sears and Kmart and, in the process, create the nation's No. 2 retail company with sales in excess of $70 bil.

The thought alone is enough to numb the mind.