Let’s Hear it for the Dollar Store

The other day I bought some picture frames as part of an on-going picture-hanging exercise caused by a move that, while it seems to have taken place just yesterday, actually already goes back almost seven months. The cost of frames astonished me. I began looking at arts and crafts stores like Michaels and Jo-Ann Fabrics; then, needing smaller frames, I thought I’d find them at CVS. Find them I did, but the cost of these frames was not noticeably lower at the drug store than at the art stores. Then an inspiration came. One of my routes to one of the Krogers we now frequent takes me by a Dollar Store—or, more formally, a Dollar Tree. There I went.

There I went but—that having been a rather grey sort of day—I was quite convinced that Dollar wouldn’t have any frames. Imagine my surprise when I found a whole rack of them. Moreover, there was actually a yellow sign above them with the word Frames on it. I walked out of there a short while later with ten frames of various sizes. These frames, by the way, were of the same quality, decorative variety, and technical features as those in other stores where, typically, they were priced at multiples of six to twelve of the price I paid here.

I noticed while in there that the clientele had a large admixture of foreigners, immigrants, and other newcomers to the Land of Plenty. One of them was a big man in middle years who had no English at all. I saw him questioning another man about the whereabouts of—well, he was making shaving motions with his hands. The man he was consulting didn’t know how to deal with the problem and told him to go up front to ask, which that man did not exactly understand. The foreigner, incidentally, had been at the entrance to the store when I went in, hesitating there. Was he building up the courage to enter and encounter American Consumerism for the first time ever? Anyway, I resolved to help the gentleman as soon as I’d picked my last frame. As I headed out, one of the store clerks was coming down the aisle. I asked here where shaving gear was stowed. “You too?” she asked. Evidently she had been told about the problem by someone else and was coming to help my foreign gentleman. All was well. He’d have his razor and his razor blades in just a minute for a mere $1.

Sluggish Retail

Last year, at this time, I published a graphic showing the monthly retail sales of General Merchandise Stores—by way of illustrating the problems faced by retail trade—yes, even in this, the biggest, selling season of the year (link).

I thought that I would show an updated version of that chart. Here it is:

Last year I only had a few early months of 2012 to show. This time I show all of 2012 as well as results for 2013 through September.

Note particularly that these stores did better than in the earlier year in 2010, 2011, and in 2012. But when we look at 2013, the values achieved in that year fall right at, below, or slightly above the sales performance in 2012 all depending on the month. You might say that no real growth is showing at all. This explains the hysteria behind the Black Friday sales campaigns that I noted in the last post.

To illustrate 2012 and 2013 performance more sharply, herewith a bar graph, by month, of sales up to September. I have include two trend lines. The top line represents 2012, the lower line 2013. Note that trends in 2013 are lower—suggesting, if things continue in the same way for the rest of 2013, that this year will come in worse than last. Not the time to be in the retail business nowadays, as I heard a fellow analyst (and family member) say just yesterday. No. And these days the reliable alternative occupation, somewhere in Health Care, also looks rather dicey…

The data used in this analysis come from the U.S. Bureau of the Census, here, showing various sources of retail data.

What Makes Black Friday Black?

As soon as I knew, I wondered why I’d been so stupid. That color comes from accounting. While your enterprise is loosing money, you’re in the red. On the Friday after Thanksgiving, you catch up, you’re in the black.

Black Friday ranks among the top ten shopping days of the year. Most of these fall into December, and traditionally the Saturday preceding Christmas ranks first. In the 1992-2002 period, Black Friday ranked low. In 2003 it was first, again in 2005. Thereafter we have no published numbers. Historical data come from International Council of Shopping Centers.

The Bureau of the Census reports retail data on a monthly basis but lags reality by several months. Last year I noted Black Friday by showing monthly retail sales, particularly for General Merchandise Stores—those most affected by the season; here two links (one, two). Today I update one of those charts, and it follows:

What this shows us is that retail sales in this category in 2011 were higher than the year before—but not by much. Indeed, the percentage increase October to November, which had been 19 percent in 1992, 17 percent in 2002, and 13 percent in 2010 has dropped to 12 percent in 2011. On this graphic I also show sales for the category in 2012—but we only have three months of data, showing how far back reporting lags. Those values indicate that 2012 should be a better year all around.

Now back to Black Friday. What we know about that day is that—if memory serves—it became generally known, by name, no more than five or six years ago. Until then the term was insider talk indicating that profitability is near or here. Since then it has become “an Event.” The media that reach me—and my e-mail—nearly bristle with news of salvation by Mega Savings. And then there is Cyber Monday, and on and on. I feel for these fellows.

In discovering all of the above, I also chanced across another name for Black Friday. It is called Buy Nothing Day (BND) and originated in Mexico in 1992. In 1997 it was then firmly linked to the Friday after Thanksgiving and is observed across the world as a protest against consumerism.

Guess what. I know exactly what to do on BND. I’ll stay at home and make some order in these endlessly growing towers of books.

---------------

The data here are from the Bureau of the Census. Use this link to reach the page from which various reports may be obtained.

Just a Little Jar of Pickles

Costco style! She Whose Food Must be Tasted is planning something mysterious. It involves masses of pickles. Hence she dispatched me to buy three jars. Looking for these I encountered the gallon-jar of Vlasic Kosher Dill Wholes—and, being at Costco, it was massive. I figured that she would be delighted and settled on buying just one. Well, she was! She wanted a picture of it, presumably for Facebook.

Well, my little Kodak M893IS, whose characteristics are that she is the smallest Kodak, presumably, decided not to be cooperative. She absolutely refused to show just how HUGE this jar really is, despite various efforts on my part to introduce perspective.  Instead, she made it fit her own view of size. Well, it’s the best I can do—but I do include a duette in which that jar is next to a 1/2 gallon bottle of Buttermilk. And I show images with and without a flash.

Costco features industrial-size retailing. If I owned a forklift, I’d take it with me shopping there. You want to see a cucumber that would not fit in this jar? Here it is. I purchased in mid-September from a household in our neighborhood; they were selling the surplus of their garden on the curb. Are we in some ways fixated on cucumbers around here? No. But unusual size does fascinate. A recent fascination is with Shi Tzus—trying to recognize them from a distance. And I do keep hoping that, someday, genetic science will deliver the miniature elephant, the perfect pet, about the size of a goat.

Just Watch that Curve Rise!

Click to enlarge, Esc to return.

What you see here is retail sales, indexed from 1992 to 2010. The sales of each industry were set to 100 for 1992, and then expressed, going forward, as change from that base. The winner of this race was Non-Store Retailers, a category dominated by electronic commerce. It is a relatively small category of the total sectors shown here, 12.9 percent in 2010. But it was 6.3 percent in 1992; its sales had quadrupled in volume. Is that finger pointing to the future? Are brick and mortar doomed? Not quite, to be sure. But if I were in the brick-and-mortar sector of retailing, I would be worried—and no doubt I would already have my website up, just to hedge my bets.

Some notes:

• General merchandise includes department stores, big discounters like Wal-Mar, small discounters like dollar stores, and warehouse clubs. Warehouse clubs turned in the biggest growth in the 1992-2010 period within this category.
• Miscellaneous stores include florists, office supplies, stationary, gifts, novelties, souvenirs, used goods stores, and others not specifically called out.
• Health and personal care stores are dominated by drug stores (Walgreens, CVS, etc.)
• Non-store retailers also include vending machines, direct sellers like Avon, and companies that sell fuel oil or gas (propane and butane) directly to home-owners. E-commerce was the second largest portion of this industry in 1992 (44.9%). In 2010 it was the largest (76.4%).

Volume ranks in 1992 and in 2010 were these:

1992	2010
Food and beverage stores	General merchandise stores
General merchandise stores	Food and beverage stores
Building materials and garden equipment	Non-store retailers
Clothing and clothing access. stores	Building materials and garden equipment
Health and personal care stores	Health and personal care stores
Non-store retailers	Clothing and clothing access. stores
Miscellaneous store retailers	Miscellaneous store retailers
Furniture and home furnishings stores	Furniture and home furnishings stores
Sporting  goods, hobby, book, and music	Sporting  goods, hobby, book, and music
Electronics and appliance stores	Electronics and appliance stores

I have the data from the U.S. Bureau of the Census. Use this link and then select Latest Annual Retail Trade Report, using Sales (1992-2010) under that heading. 

Retail Wrap-Up: 2011

The U.S. Bureau of the Census released data December 2011 retail sales yesterday. Thus we have a complete picture. In a nutshell, 2011 was a pretty good year. To get a good overview of the recent downturn of the economy and our slow recovery from it, I present first a graphic showing retail sales by month, but excluding automobiles, for the years 2007 through 2011.

This is an interesting picture. What it shows is that 2009 and 2010 were “lost years,” as it were. 2009 produced results lower than 2007; 2010 underperformed 2008 until September—when, in 2008, people finally began to reflect in their purchases the facts on the ground, namely that the economy was tanking.

In 2007 December sales were lower than November sales, that decline matched, and in spades, the year after. In the entire period 1992-2010, December sales exceeded November sales by about a hair in every year except three: 2005, 2007, and 2009. The fact that 2011 also lagged its own November sales tells me that public confidence has still not fully recovered. The media reported a 0.1 percent gain, but here I am excluding autos. And 2011 December sales ($328.7 billion) were lower than November’s ($329.4 billion), a 0.21 percent drop.

Next a look at a subcategory, General Merchandise Stores. Here is a graphic on just November and December sales for the same years:

The general pattern is very similar, but the drop-off from November to December was larger. It fell by 0.82 percent. Could that difference be accounted for, in part, by shifts from brick-and-mortar to Internet purchasing? Based on our own family’s experience, the answer seems to be yes.

I obtained the data shown using a Bureau of the Census Internet data server (link).

Retail Mysteries

The holiday sales season is of great importance to retail. We hear that every year. The National Retail Federation provides some rationales. The Federation reports that in 2010 19.4 percent of all retail sales took place in the holiday season, which season they define as the 61 days of November and December. For many retailers, that season accounts for somewhere between 25 to 40 percent of revenues.

Now arithmetic tells us that 61 days are 16.7 percent of the year. Therefore if 19.4 percent of sales fall into this period, the holidays represent a 2.7 percent jump over average. That seems a rather small amount until we consider some of the mysteries of retail. That mystery hides in the fact that the number of products sold is very large—but number regularly purchased is a small fraction of these.

I came across these interesting facts published by Focused Management, Inc. (link). Looking only at the grocery segment, a typical supermarket carries 22,000 items. Of a quarter of these, thus 5,500, the stores sell fewer than one unit per month. And 8 percent (7,260) represent 85 percent of all sales.

Let me stay with groceries a moment longer to develop the nature of this mystery—or paradox. In retail turnover is the key to profitability; it reduces the carrying costs per unit of time. Therefore the slow moving items, that 72 percent of all items carried, costs much more to carry—but having them is what increases patronage. Reaching always for low-hanging fruit, retail consultants perpetually urge their customers to rid themselves of slow-moving items. To be sure, small grocers, exploiting convenience, do that routinely. But they are small precisely because they do not carry all of the items a supermarket does. And with a smaller customer base and lower volume, they have to charge higher prices.

It strikes me now that the ratios we encounter in grocery stories must be even more pronounced for those who sell general merchandise we don’t consume on a daily basis. This would suggest that their profit margins are even lower—and the surge in holiday demand is therefore even more welcome. Profits are reached after a sufficiently large volume pays for all costs first.

Herewith a comparison of a big general merchandiser (Kmart/Sears) and a big grocer (Kroger). The data come from the two companies’ 10-K reports:

Retail Examples. In million dollars or percent.
	Sears Holdings (Sears/Kmart)
	Revenues	Net Profits	Net as %
2007	50,703	826	1.63
2008	46,770	53	0.11
2009	44,043	253	0.57
2010	43,326	133	0.31
	Kroger
	Revenues	Net Profits	Net as %
2008	76,148	1,250	1.64
2009	76,733	70	0.09
2010	82,189	1,116	1.36

What this tells me is that retail profit margins are quite low for those who carry a range of merchandise—as do these two retailers—but those based on staples recover more rapidly from a total meltdown than those who carry the less absolutely necessary merchandise. Kroger’s very low profit percentage in 2009 was due to a goodwill write-down linked to one of its elements, Ralphs. Had that unusual charge not been levied, Kroger’s margin would have been 1.54 percent in 2009. The savvy reader may also fault me for using Sears/Kmart as an example; that merged entity has been suffering for a while. But it is difficult, these days, to find a big general merchandiser who is not also selling groceries…

The New America Indeed

We spent about an hour in a Dollar Store yesterday, a rare event, and came out with a bill for $17.41—meaning that we must have bought 15 items; the rest is tax. Later that day Brigitte heard a news story. It said that two kinds of outlets had done splendidly of late: dollar stores and luxury outlets. I went on a search this morning to find the story. I found it on Investors.com (link). It was in a section titled The New America. Indeed, I thought. Indeed.

The article cites data from the International Council of Shopping Centers. Average store-sales Q4 to Q4, 2010 to 2011, stood at 4.9 percent. Luxury folks averaged 8.1, dollar stores above 5 percent. The International Council talks about a barbell-shaped spending pattern. Nice image that. The middle of that barbell is the thin part where, presumably, most people still live. But I must tell you:  What we saw in this Dollar Store was quite amazing. To be sure, we saw lots and lots of junk not worth even 50 cents. But we saw lots of stuff at a dollar that elsewhere sells for $3 or $4. The place was thick with people. I fell to examining their faces—and concluded that all those present in that store were most intelligent-looking. I avoided mirrors lest I lower that high average.

December Retail Sales

Back in 2009 I posted data on percent change in retail sales, December to December. Back then the last hard data point was for 2008, showing a huge dip. You can still see that post on the old LaMarotte (link). I thought I would update the graphic. The source for it is a tabulation by the Bureau of the Census (link).

The updated graphic, together with a projection (in red) showing what might happen next month is below:

The graphed data show changes in total retail sales, December to December, from 1992 through 2010. The value for 2011 is a projection of the trend shown earlier. We begin in 1992; the change in that year, therefore is zero; but for all other years, I show the change from the previous December. To this I have added a trend line, courtesy of Microsoft Excel. The conclusion is that growth in retail December to December is definitely trending down, but this down-trend is entirely due to the severity of recessions. Just to check on this, I tried making the 2007-2008 recession milder; thus I assumed that the change, 2007 to 2008, would be a mild growth, about 3 percent—rather then the nearly 13 percent dip. In that case the trend of this series is flat for all practical purposes. The illustration of that is inserted as a smaller graphic on the left; 2008 is “corrected,” and I’ve only plotted through 2010, thus only using actual data.

Let’s face it. December is the nation’s big shopping month. This pattern only weakens when the economy is really diving into the sand, as it did in 2008. In this period two recessions took place: March to November in 2001 and December 2007 through June 2009. The public felt both of these coming—and curbed its spending. But the last one was severe, and people really sat on their wallets.

More October-November Retail Stats

Yesterday I showed retail sales for two categories (all retail and general merchandise stores) for three years (1992, 2002, and 2010). Today I am showing data on October and November sales for the same two categories and for every year in the 1992 through 2010 period.

My object, of course, is to throw some light on Black Friday, the day when, based on the retail industry’s experience, retailer begin to turn a profit for the year. My focus is on the general trend, and the graphics today do a better job in illuminating which way things are trending over an eighteen-year period. Here are the two charts:

What these patterns shows is that the October-to-November jump in sales is much more important for general merchandise stores than for retail sales as a whole. The latter have much bigger gains in this month, averaging 16.8 percent over the period versus retail as a whole, averaging 3.4 percent. The trend in month-to-month percentage gains is down in both cases, but the decline is much more pronounced for the general merchandise stores.

By way of contrast, the following graphic shows the same patterns for book stores. The performance of these retailers falls somewhere midway between all retailing and merchandising stores. The average percentage jump in sales, October to November, is better than for retailing as a whole, thus 5.3 versus 3.4 percent—but less than shown for general merchandise stores. And the trend, it turns out, is flat.

So what do we make of these trends—particularly the smaller-and-smaller jump in retail sales, October-to-November, experienced by general merchandise stores. Behind that trend, I propose, lies another and much more pervasive one. It is the gradual blurring of once much more sharply defined retail categories. Consider, for instance, that the largest grocery store in the United States is Wal-Mart. But for purposes of reporting, the Census Bureau categorizes Wal-Mart as a general merchandise store (NAICS 452910) whereas the Bureau places Kroger into the supermarkets and other grocers category (NAICS 445110). Wal-Mart-owned Sam’s Club has been featuring groceries since 1983; regular Wal-Mart stores have sold food at least since 1990, the year Wal-Mart acquired McLane Company (which it later sold), a grocery and food distributor. I am tentative about the date because I cannot discover exactly when Wal-Mart began selling groceries; maybe it always did. At present, according to Wal-Mart, half of its revenues are derived from groceries. Have they always? And under a 2010 program the company is restructuring small stores to be principally grocery stores.

Now, mind you, other major general merchandise stores are also selling groceries. One thinks of Costco and other warehouse clubs. And so are Kmart, Sears (which is owned by Kmart), Meier, and Target. So also are drug stores, for that matter. This is what I mean by a fuzzing of the definitions.

Quite possibly the ever smaller sales jumps of general merchandisers in November have something to do with internal shifts in the share of the product lines that they carry. As these stores come ever more to resemble “all retailing,” so also will Black Friday gradually grey out.

Some “Black” Perspectives

Black Friday, this year, begins in the evening of Turkey Thursday, and the smell of our retailers’ tangible hysteria almost hides the pleasing odors of that roasting bird. I thought I’d look at retail sales by month and see what the pattern looks like for some years going backwards.

Here is the first such chart. It shows all retail sales by month, excluding only motor vehicles and parts.

There is certainly a “lift” in sales between October and November in the three years selected, 1992, 2002, and 2010. But the real lift actually comes in December. What color do we paint the last month of the year?

The increase in sales, while meaningfully present above, is not exactly dramatic, of course, while the sales-leap in December is. I thought I’d look at a narrower segment, General Merchandise Stores. Here is the graphic for these:

General merchandise stores certainly show much sharper increases than retail as a whole. In 1992 all retail increased (October to November) by a mere 1.6 percent; general merchandise store sales increased by 19.3 percent! So that’s where we really get this new way of celebrating Thanksgiving.

An interesting phenomenon now appears. As we advance in time, the monthly growth rates experienced by general merchandise stores decline. In 2002 they advanced 17 and in 2010 only 13.2 percent. Meanwhile all retail (ex automotive) increased from the 1.6 percent base in 1992 to 3.9 percent in 2002 and 4.4 percent in 2010. All retail, of course, includes the general merchandise category. The panic seems to relate more directly to people who sell special goods that, perhaps, are more discretionary.

What will 2011 bring? It will be interesting to see. And we can be sure the results will be very well reported—because the holidays, these days, mean shopping. And little else.