Larger discounters lead chains to record results

Discount Store News, Dec 14, 1987

Larger Discounters Lead Chains to Record Results

Discount stores set new records in sales per square foot and sales per store last year, according to the just-released "Cornell Study," but profits leveled after three consecutive record years.

The report, titled "Operating Results of Mass Retail Stores," was researched and compiled by Cornell University under the sponsorship of the International Mass Retail Association. It polled 24 discount store operations earlier this year, and reflects year-end results for fiscal 1986.

Rod Hawkes, a Cornell University extension associate and co-author of the report, said that while results were "not earth-shattering" this year, the overall trend is "healthy and evolutionary."

Hawkes called the rise in sales per square foot "encouraging" after two flat years, but said, "That was nowhere near the gain in per-store sales." Sales per store rose to $9.4 million in 1986, an average of $177 per square foot of selling area. After-tax earnings dipped slightly to 2.48 percent of sales. Gross margin also fell slightly, from 28.54 percent of sales in 1985 to 27.84 percent in 1986.

According to Hawkes, the figures show that it has become "increasingly difficult for mid-size stores to be profitable." And, small operators (under $300 million in sales) had an even rougher time, returning a scant profit of 0.11 percent of sales in 1986. Medium-sized firms showed a 1.61 percent profit, while chains of $1 billion or more in sales returned 2.78 percent of sales.

Larger chains also led in sales per store ($10.9 million, vs. $5.9 million for medium-size chains and $6.2 million for small firms), sales per square foot ($181.3 vs. $161.4 and $154.6), and average customer transaction ($18.7 vs. $14.5 and $18).

Larger chains trailed others only in productivity per employee, averaging $101,944 per store employee, while small firms led with an average of $167,589 and mid-size firms averaged $123,284 per employee.

Hard lines accounted for most of the increase in persquare-foot sales, averaging $204.49 vs. $154.49 for soft lines. The leading seller per square foot by a large margin was tobacco ($1,358), followed by photo ($675.06), audio and video ($476.90), candy ($464.96), and records and tapes ($338.17). Women's hosiery topped soft lines at $269.61.

As a percentage of total sales, women's dresses, lingerie and sleepwear, accessories, men's wear, girls' wear, boys' wear, shoes, domestics, housewares, hardware, paint, toys, major appliances, stationery, and auto all lost ground.

Making up the slack were: women's coats and suits, hosiery, blouses and sportswear, jewelry and watches, infants' wear, fabrics, sporting goods, traffic appliances, audio and video, records and tapes, photo, gifts, books and magazines, candy, tobacco, drugs and cosmetics, pets, lawn & garden, building supplies, and sporting goods.

Largest gainers were: juvenile furniture, luggage, records and tapes, drugs and cosmetics, and books and magazines.

With the exception of lawn & garden, cumulative markup as a percent of original retail increased across the board. The largest gain was recorded by handbags and accessories, which rose from 29.79 percent to 54.91 percent. Overall, the highest markup was noted in jewelry and watches (56.34), but shoes (55.23) and accessories (54.91) were close behind.

Gross margin leaders (as a percentage of sales) were gifts and flowers (49.29 percent), accessories (46.1 percent), shoes (40.62 percent), stationery (39.48 percent), building supplies (38.97 percent), and jewelry and watches (38.03 percent).

Lowest gross margins were turned in by tobacco (8.78 percent), traffic appliances (15.14 percent), books and magazines (16.02 percent), and audio and video (16.21 percent).

Gross margin changes from 1985 were minimal, generally a point or two up or down in most categories.

Tobacco products were tops in turns with 16.12 in 1986, followed by candy (9.31), pets (5.63), women's blouses and sportswear (5.24), women's dresses (5), and women's coats and suits (4.95).

Significantly, the only products included above which showed a correlation between turns and gross margin were low-margin, high-turn tobacco and high-margin, low-turn jewelry.

"Operating Results of Mass Retail Stores" can be obtained ($65 for IMRA members, $80 for non-members) from IMRA, 570 Seventh Ave., New York, N.Y., 10018.