Retail businesses in the U.S. are anticipating a strong holiday shopping season in 2014 following positive forecasts from both the National Retail Federation and Gallup.
This is good news for an industry that, while not necessarily struggling, has seen a moderate decrease in its rate of revenue growth.
“Retail was an industry impacted in a big way by the recession,” says Sageworks analyst Libby Bierman. “Five years later, they have bounced back and continue to grow sales positively, but they are seeing their rate of growth slip.”
Private retail companies are currently growing annual sales at a rate of 6.3 percent, slipping from a nearly double-digit rate of revenue growth two years ago. These positive pre-holiday reports suggest an uptick in consumer confidence that could be reflected in higher revenues for retailers.
“If consumers feel more confident in the economy and personal finances, that could lead to increased willingness to spend when they hit the stores or online retailers this holiday season,” says Bierman. “With that in mind, I’m sure retailers are hoping these consumer sentiment reports are correct.”
Sageworks ranked 20 retail sub-sectors by revenue growth and net profit margins, looking at statements ended in the past year.
“We wanted to get a sense of which industries within retail have performed well this year, which ones could use a holiday boost, and which retailers are struggling more than the average,” Bierman says.
Home-furnishing stores, other general merchandise outlets and direct-selling establishments were at the top of the list, with higher rates of revenue growth and higher average net profit margins than the average privately held retail company. The home furnishing stores category excludes furniture stores but includes retailers of rugs, lamps, decorative accessories and window treatments. Direct sellers is a broad category that excludes mail-order but includes such diverse businesses as fuel dealers and retailers selling door-to-door or using in-home parties.
On the other end of the spectrum, stores selling more of the basics--office supplies, groceries and clothing--are growing sales at a slower rate than the average retailer and earning slightly lower margins as well.
“These retailers could benefit from holiday demand,” says Bierman. “With Small Business Saturday, Black Friday, and Christmas shopping close by, they may have plenty of opportunities to get these numbers up.”
Not all private retailers are small, but most small retailers are privately held. According to the Census Bureau’s Statistics of U.S. Businesses, retailers with less than 500 employees account for 99.7 percent of all retail firms and about 36 percent of total retail payroll. Thus, privately held retailers play a key role in the sector, employment and the critical holiday shopping season.
Note about time frame: Each data point corresponds to a trailing 12-month time period. This time period includes private-company financial statements that ended between Oct. 1, 2013, and Sept. 30, 2014.