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INDUSTRY REPORT 45291

Warehouse Clubs & Supercenters in the US

Closed doors: Revenue is projected to decline due to increased online competition

Cecilia Fernandez | April 2020

Warehouse Clubs & Supercenters in the US April 2020

About IBISWorld IBISWorld specializes in industry research with coverage on thousands of global industries. Our comprehensive data and in-depth analysis help businesses of all types gain quick and actionable insights on industries around the world. Busy professionals can spend less time researching and preparing for meetings, and more time focused on making strategic business decisions that benefit you, your company and your clients. We offer research on industries in the US, Canada, Australia, New Zealand, Germany, the UK, Ireland, China and Mexico, as well as industries that are truly global in nature.

Contents ABOUT THIS INDUSTRY..................................3

COVID-19 (Coronavirus) Impact Update........................... 3 Industry Definition............................................................ 3 Supply Chain..................................................................... 3 Major Players....................................................................3 Main Activities.................................................................. 3 Similar Industries..............................................................4 Related International Industries........................................4

AT A GLANCE...................................................6

Key Statistics Snapshot.................................................... 6 Key Trends........................................................................6 SWOT in the Industry........................................................ 6 Executive Summary.......................................................... 6 Industry Structure............................................................. 7 Key Industry Data..............................................................8 Major Players....................................................................9 Products & Services Segmentation.................................. 9

INDUSTRY PERFORMANCE...........................10

Key External Drivers........................................................ 10 Industry Performance..................................................... 11 Industry Data Timeseries................................................13

INDUSTRY OUTLOOK................................... 14

Revenue Outlook.............................................................15 Industry Life Cycle.......................................................... 15 Products & Services Segmentation................................ 16 Supply Chain................................................................... 16 Products & Services........................................................16 Demand Determinants....................................................18 Major Markets................................................................ 19 International Trade......................................................... 21 Business Locations........................................................ 21

COMPETITIVE LANDSCAPE.......................... 23

Market Share Concentration...........................................23 Key Success Factors...................................................... 23 Cost Structure Benchmarks...........................................24 Basis of Competition...................................................... 25 Barriers to Entry.............................................................. 26 Industry Globalization..................................................... 27

MAJOR COMPANIES......................................28

Major Players..................................................................28 Other Companies............................................................ 30

OPERATING CONDITIONS........................... 31

Capital Intensity.............................................................. 31 Technology & Systems................................................... 32 Technology & Systems................................................... 33 Revenue Volatility........................................................... 33 Regulation & Policy......................................................... 34 Industry Assistance........................................................ 34

KEY STATISTICS.............................................36

Industry Data.................................................................. 36 Annual Change............................................................... 36 Key Ratios.......................................................................36 Industry Financial Ratios................................................ 37 Additional Resources......................................................38 Industry Jargon...............................................................38 Glossary..........................................................................38

Legend Icons are used throughout the report to indicate impact on the industry.

Negative impact

Neutral impact

Positive impact

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About This Industry COVID-19 (Coronavirus) Impact Update

IBISWorld's analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic:

• Warehouse Clubs and Supercenters industry revenue is anticipated to increase 6.6% as consumers stock up on groceries, cleaning supplies and other industry products in fear of the outbreak of the COVID-19 pandemic.

• Since the national unemployment rate has spiked in 2020, consumers have less disposable income and want to spend less, leading them to visit industry establishments due to their lower prices.

• Consumers could fear visiting industry establishments due to its large size and possibility of exposure. Considering that industry products are essential, consumers will likely turn to online retailers, which could harm the industry.

Note: The content in this report is currently being updated to reflect the trends outlined above.

Industry Definition This industry includes large stores that primarily retail a general line of grocery products and merchandise items (e.g. apparel and appliances). Warehouse clubs offer customers a wide selection of goods, often in bulk and at discounted prices, in exchange for a membership fee paid by each customer. Supercenters are large discount department stores that also sell perishable groceries. However, unlike warehouse clubs, supercenters do not have membership requirements for customers.

Supply Chain Supply Industries

Frozen Food Production

Snack Food Production

- Manufacturing

Vacuum, Fan & Small Household Appliance Manufacturing

Grocery Wholesaling

Men's & Boys' Apparel Wholesaling

TV & Appliance Wholesaling

Confectionery Wholesaling

Footwear Wholesaling

Furniture Wholesaling

Demand Industries

- Day Care

- Bed & Breakfast & Hostel Accommodations

- Hair & Nail Salons

- Civic, Social & Youth Organizations

- Consumers

Major Players Wal-mart Stores Inc.

Costco Wholesale

Main Activities The primary activities of this industry are:

Retailing groceries

Retailing furniture

Retailing apparel

Retailing appliances

Retailing digital and print media

Retailing personal care products

Retailing automotive fuels (e.g. gasoline)

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The major products and services in this industry are:

Food and beverages

Fuel and other

Home and appliances

Apparel and accessories

Health, beauty and wellness

Similar Industries 44229 - Home Furnishings Stores in the US

This industry sells new home furnishings (except furniture and floor coverings).

44511 - Supermarkets & Grocery Stores in the US

This industry sells a broad range of fresh and preserved foods and is a more specialized competitor to warehouse clubs and supercenters.

44512 - Convenience Stores in the US

This industry retails a broad merchandise mix, has extended hours of operation and offers a minimum of 500 stock keeping units (SKUs).

45211 - Department Stores in the US

This industry retails a range of new products, including apparel, food, cosmetics and furniture. Merchandise lines are normally arranged in separate departments.

45299 - Dollar & Variety Stores in the US

This industry retails a range of general merchandise at deep discounts, including apparel, automotive parts and dry goods.

45411a - E-Commerce & Online Auctions in the US

This industry includes businesses that retail all types of merchandise by means of mail or by electronic media, such as interactive TVs or computers.

45411b - Mail Order in the US

This industry includes business that either mail or email catalogs. These businesses retail from a catalog, showrooms or mail-order houses.

Related International Industries

G4111 - Supermarkets and Grocery Stores in Australia

Supermarkets and grocery stores retail a range of groceries and food products, including fruit and vegetables, bread, cigarettes, canned goods, toiletries, dairy goods, delicatessen items and cleaning goods. Specialist retailers, niche retailers and convenience stores are excluded from the industry.

G4260 - Department Stores in Australia

Department stores retail fabrics, soft goods, clothing, chinaware, glassware, housewares, perfumes, cosmetics, toiletries, furniture and household appliances. Goods are normally sold through separate instore departments. Department stores purchase products from wholesalers and manufacturers and onsell them to consumers. They also undertake activities including customer service, product merchandising, advertising, inventory control and cash handling.

6511 - Department Stores & Shopping Malls in China

Department stores and shopping malls in China are mainly engaged in large-scale retailing of a wide range of merchandise across many categories. These activities are generally managed centrally in one building. The industry's major product categories are: clothing and footwear, jewelry, cosmetics, home furnishings and décor, electronic appliances, and food and beverages.

6512 - Supermarkets in China

The Supermarket industry in China is part of China's retail trade sector. Supermarkets retail a broad range of food and daily goods. Most of the goods carried by supermarkets are purchased from domestic manufacturers. Operators, generally known as supermarkets or hypermarkets, then retail these goods to the general public.

G47.110 - Supermarkets in the UK

Supermarkets sell a range of groceries and food, including fruit, vegetables, bread, canned goods,

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toiletries, dairy goods, alcohol, cleaning products and cigarettes. Off licences, greengrocers and symbol group and non-affiliated independent convenience stores are not included in this industry.

G47.190 - Department Stores in the UK

Department stores retail a wide range of general merchandise, including clothing, household appliances, toys, games, personal-care products and garden equipment. Non-specialised stores that primarily sell food are classified as supermarkets and are not included in the industry.

45291CA - Warehouse Clubs & Supercentres in Canada

This industry is made up of large stores that primarily retail a general line of grocery products and merchandise items (e.g. apparel). Warehouse clubs offer customers a wide selection of merchandise, often in bulk, at discounted prices, in exchange for a membership fee that is paid by each customer. Supercentres are large discount department stores that also sell perishable groceries. Unlike warehouse clubs, however, supercentres do not have eligibility requirements for customers.

G4110NZ - Supermarkets, Grocery Stores and Convenience Stores in New Zealand

Operators in the industry are primarily engaged in retailing groceries, such as meat, fish, fruit, vegetables, dairy products, bread, canned goods, toiletries and cleaning items. The industry includes full-service supermarkets, grocery stores and convenience stores, but excludes specialised food-line grocers, such as butchers and greengrocers.

G4260NZ - Department Stores in New Zealand

Department stores retail clothing, furniture, kitchenware, glassware, houseware, household appliances, soft goods, fabrics, perfumes, cosmetics and toiletries. These products are generally displayed and sold in separate instore departments. Firms source merchandise from wholesalers and manufacturers and then sell it to consumers through bricks-and-mortar stores or ecommerce sites. Pure-play online players are excluded from the industry.

G47.110IE - Supermarkets in Ireland

Supermarkets sell a range of groceries and food, including fruit, vegetables, bread, canned goods, toiletries, dairy goods, alcohol, cleaning products and cigarettes. Off licences, greengrocers and symbol group and non-affiliated independent convenience stores are not included in this industry.

G47.190IE - Department Stores in Ireland

Department stores are non-specialised retail stores that stock and sell a wide range of items covering many different product categories such as food, clothing, novelty items furniture and more.

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At a Glance Key Statistics Snapshot

Total Revenue 2020

$514.4bn

Annual Growth 2015-2020

1.3%

Annual Growth 2020-2025

-0.3% Profit Margin

2020

5.1%

Wages as a share of Revenue 2020

10.0%

Number of Businesses 2015-2020

0.0%

Key Trends As corporate profit has increased, businesses that shop at industry establishments have upped their spending

While falling crude oil prices have negatively affected revenue, profit margins have stayed strong

The industry's dominance in the retail sector has put many major players in the media spotlight

Operators will likely continue to benefit from anticipated improvements in the general economy

When consumer sentiment and per capita disposable income are high, individuals spend more

Despite increased competition, industry demand is projected to remain high

SWOT in the Industry

Strengths

High & Steady Barriers to Entry

Low Volatility

Low Imports

High Profit vs. Sector Average

Low Customer Class Concentration

Low Product/Service Concentration

High Revenue per Employee

Low Capital Requirements

Weaknesses

None & Steady Level of Assistance

High Competition

Opportunities

High Revenue Growth (2020-2025)

Percentage of services conducted online

Threats

Low Revenue Growth (2005-2020)

Low Revenue Growth (2015-2020)

Low Outlier Growth

Low Performance Drivers

Corporate profit

Executive Summary

The Warehouse Clubs and Supercenters industry comprises stores that retail discount groceries, along with other basic goods such as appliances, and achieve cost savings by leveraging economies of scale, offering products in bulk or charging membership fees.

Due to the low-cost, high-value products offered by warehouse clubs and supercenters, the industry typically performs well regardless of the macroeconomic climate. However, when businesses and consumers have deeper pockets, they are likely to spend more at industry establishments. As a result of rising per capita disposable income and consumer spending, industry revenue has increased at an

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annualized rate of 1.3% to $514.4 billion over the five years to 2020. Industry revenue is expected to rise 6.6% in 2020 alone as consumers fear the COVID-19 (coronavirus) and stock up on industry products to stay at home.

Despite overall industry growth, steep declines in the world price of crude oil and an annualized decrease in corporate profit have kept revenue gains slow during the current period. Many industry operators, such as Costco Wholesale Corp., retail fuel at establishment-run gas stations. Therefore, as the world price of crude oil declined at an annualized rate of 6.5% over the past five years, operators were forced to lower gasoline prices, which stifled industry revenue growth between 2015 and 2017. However, the decline in the world price of crude oil had a positive effect on the average industry profit margin, which is heavily affected by transportation costs. Since operators buy in bulk and source many of their goods from overseas manufacturers, the industry incurs high transportation costs. Therefore, the decline in the world price of crude oil helped sustain industry profit margins during the current period.

Over the five years to 2025, industry revenue is anticipated to remain relatively stagnant due to uncertainty about the impact of the pandemic on the domestic economy. Steady disposable income levels and corporate profit margins are projected to continue to keep the industry afloat over the next five years. Nevertheless, increasing online competition will likely pose a threat to the industry, as operators such as Amazon.com Inc. expand their customer base, keeping industry revenue from growing. Overall, industry revenue is forecast to decrease at an annualized rate of 0.3% to $507.8 billion during the outlook period.

Industry Structure Level Trend

Life Cycle Mature

Revenue Volatility Low

Capital Intensity Low

Industry Assistance None Steady

Concentration Level High

Level Trend

Regulation Level Light Steady

Technology Change Medium

Barriers to Entry High Steady

Industry Globalization Low Increasing

Competition Level High Increasing

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Key Industry Data

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Major Players

Products & Services Segmentation

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Industry Performance Key External Drivers

o Corporate profit

Businesses, primarily smaller ones, account for 41.4% of revenue for the Warehouse Clubs and Supercenters industry in 2020. These companies stock up on a range of office supplies, from coffee and desk chairs to staples and kitchen supplies. Consequently, improved corporate profit and business sentiment encourage increased spending at warehouse clubs. Corporate profit is expected to increase in 2020.

o Per capita disposable income

High disposable income levels increase the possibility that households will spend liberally on discretionary goods, strengthening overall demand for this industry. While warehouse clubs and supercenters remain attractive during periods of low disposable income, consumers spend less per trip when disposable income is low. Per capita disposable income is expected to increase in 2020, representing a potential opportunity for the industry.

o Percentage of services conducted online

Brick-and-mortar stores incur higher overhead costs than online retailers. As a result, online retailers can offer lower prices, wider inventories and the ease of direct shipping. An increase in the percentage of services conducted online reflects an increase in the share of consumers that opt to purchase their items online, which siphons revenue from warehouse clubs and supercenters. The percentage of services conducted online is expected to rise in 2020, posing a potential threat to the industry.

o World price of crude oil

Many warehouse clubs and supercenters have gasoline stations that generate a share of industry revenue. Industry revenue typically increases with an uptick in the world price of crude oil since higher oil prices enable industry operators to charge more for gasoline. Moreover, industry players typically sell their gasoline at competitive rates, and price-conscious consumers are more likely to use industry- operated gas stations when oil prices are high. The world price of crude oil is expected to fall in 2020.

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Industry Performance The Warehouse Clubs and Supercenters industry consists of operators such as Walmart Inc. and Costco Wholesale Corp., whose establishments primarily sell a general line of grocery products and other basic merchandise, such as apparel, appliances and beauty supplies.

While warehouse clubs have membership requirements and supercenters do not, both store types retail discounted items by leveraging their large economies of scale to receive favorable contracts with upstream manufacturers, and often sell in bulk. Due to its low-priced offerings, this industry is mostly shielded from swings in the general economy. When consumer sentiment is high, shoppers tend to spend more during their visits to industry establishments and buy more superfluous items. Conversely, when consumer sentiment is low, warehouse clubs and superstores draw a larger pool of consumers because more-affluent shoppers tend to cut down on expenses. Over the five years to 2020, per capita disposable income and consumer spending have both increased, which has encouraged consumers to spend more at warehouse clubs and supercenters. As a result of these trends, industry revenue has grown at an annualized rate of 1.3% to $514.4 billion over the five years to 2020. However, revenue growth has been relatively slow during the current period as oil prices sharply declined, forcing operators to charge less for fuel at their gas stations.

Still, in 2020, industry revenue is anticipated to increase 6.6% as consumers stock up on groceries, cleaning supplies and other industry products in fear of the outbreak of COVID-19 (coronavirus) in the United States. The impact of the coronavirus on the domestic economy is still uncertain; however, the national unemployment rate has spiked in 2020. As consumers have less disposable income and want to spend less, they will likely visit industry establishments due to their lower prices, benefiting the industry in 2020.

Higher incomes, higher revenue

Consumers and businesses tend to spend liberally on discretionary goods when the economy is strong, unemployment is low and households and businesses have robust income. This leads to high demand for retail goods, including those sold at warehouse clubs and supercenters. Over the five years to 2020, per capita disposable income has increased at an annualized rate of 2.2%, which has enabled consumers to spend more during their visits to industry establishments. In 2020 alone, per capita disposable income is expected to increase 1.9%, supporting anticipated industry revenue growth of 6.6% that same year. However, corporate profit has decreased an annualized 1.4% over the past five years, discouraging greater spending from businesses that use merchandise from industry operators at their places of work, mitigating revenue growth. In 2020, IBISWorld estimates that 41.4% of industry revenue is generated from businesses. Companies that shop at industry establishments include restaurants, hair and nail salons, daycare centers, schools, motels and other small businesses. As corporate profit has decreased, businesses that shop at industry establishments have cut their spending, which has led to slower industry revenue growth over the past five years.

Oil prices boost profit, decrease revenue

Although industry revenue has increased during the current period, revenue growth has also been somewhat stunted from the steep decline in the world price of crude oil. Several industry operators include gasoline in their product portfolios in the form of establishment-run gas stations. For example, major industry player Costco Wholesale Corp. operated 593 gas stations in fiscal 2019 (year-end August; latest data available). As the world price of crude oil dropped at an annualized rate of 6.5% over the five years to 2020, industry operators were forced to decrease gasoline prices, resulting in slower overall revenue growth. Furthermore, because industry operators typically retail their gasoline at lower prices than the average gas station, price-conscious consumers are more likely to seek out gasoline from industry operators when oil prices are high. However, due to the recent drop in crude oil prices, more gas stations have been selling fuel at relatively low prices, which has made consumers' desire to find the least expensive place to fill their tanks less urgent.

While falling crude oil prices have negatively affected revenue, profit margins have stayed strong. Warehouse clubs and supercenters buy in bulk and are therefore responsible for transporting large amounts of inventory to and from their establishments. This leads to high transportation costs for industry operators, leaving profit margins highly susceptible to fluctuations in crude oil prices. As the world price of crude oil fell over past five years, operators saved on transportation costs throughout the supply chain. The average industry profit margin, measured as earnings before interest and taxes, is expected to

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comprise 5.1% of revenue in 2020, up from 4.7% in 2015.

Reputation and growth

Over the past five years, the industry's dominance in the retail sector has put many major players in the media spotlight. Activist groups claim that these stores damage independent retailers and cause traffic congestion and suburban sprawl. These groups also suggest that industry players force US companies to ship high-paying manufacturing jobs overseas to meet demand for lower prices. Some communities have passed ordinances to keep big retailers out. Combatting these accusations, industry leaders argue that supercenters are a response to consumer demand. Some policymakers point out that the stores also create jobs, enable customers to save money for other expenditures and pour much-needed tax dollars into surrounding communities.

Despite criticisms, many consumers continue to shop at industry establishments due to their competitive prices. Consequently, the number of establishments has increased an annualized 0.7% to 5,777 locations over the five years to 2020, as industry operators aim to meet demand. Likewise, industry employment has grown an annualized 1.3% to reach 1.6 million workers during the same period. Wages have expanded during the current period. In 2015, the average industry employee earned $29,352, while the average wage has expanded to $32,002 in 2020.

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Industry Data Timeseries

Revenue

($m) IVA

($m) Estab. (Units)

Enterprises (Units)

Employment (Units)

Exports ($m)

Imports ($m)

Wages ($m)

Domestic Demand

($m)

Per capita disposable

income ($)

2003 300,008 36,297 3,047 53.0 889,932 N/A N/A 23,996 N/A 35,445

2004 327,320 38,999 2,988 16.0 922,605 N/A N/A 24,924 N/A 36,300

2005 356,192 41,759 3,137 35.0 925,055 N/A N/A 25,731 N/A 36,526

2006 378,835 38,914 3,210 49.0 964,891 N/A N/A 26,034 N/A 37,622

2007 402,362 45,997 3,277 65.0 961,360 N/A N/A 27,086 N/A 38,120

2008 426,582 58,668 4,411 33.0 1,374,120 N/A N/A 37,339 N/A 38,126

2009 427,335 59,354 4,482 22.0 1,410,487 N/A N/A 37,987 N/A 37,730

2010 438,455 56,172 4,544 24.0 1,335,162 N/A N/A 37,318 N/A 38,163

2011 450,903 60,787 4,587 17.0 1,313,457 N/A N/A 36,889 N/A 38,780

2012 465,281 65,301 5,164 32.0 1,394,352 N/A N/A 39,711 N/A 39,784

2013 471,949 63,370 5,162 12.0 1,420,442 N/A N/A 38,829 N/A 39,004

2014 478,775 65,143 5,307 16.0 1,434,227 N/A N/A 40,725 N/A 40,310

2015 483,069 70,652 5,585 18.0 1,501,899 N/A N/A 44,084 N/A 41,670

2016 486,979 69,278 5,601 17.0 1,556,821 N/A N/A 45,416 N/A 42,108

2017 490,496 67,723 5,545 17.0 1,536,364 N/A N/A 47,123 N/A 43,056

2018 488,481 78,752 5,524 17.0 1,531,103 N/A N/A 48,955 N/A 44,521

2019 482,786 77,107 5,591 17.0 1,530,959 N/A N/A 48,837 N/A 45,581

2020 514,412 82,313 5,777 18.0 1,605,469 N/A N/A 51,378 N/A 46,426

2021 512,287 81,923 5,824 18.0 1,609,877 N/A N/A 51,449 N/A 47,218

2022 509,920 81,399 5,860 18.0 1,612,890 N/A N/A 51,478 N/A 47,999

2023 508,458 81,036 5,878 18.0 1,614,469 N/A N/A 51,489 N/A 48,830

2024 507,851 80,797 5,900 18.0 1,616,251 N/A N/A 51,522 N/A 49,708

2025 507,786 80,613 5,932 18.0 1,620,245 N/A N/A 51,623 N/A 50,665

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Industry Outlook The Warehouse Clubs and Supercenters industry is forecast to

continue expanding over the five years to 2025.

However, industry revenue is projected to remain relatively stagnant, decreasing at an annualized rate of 0.3% to $507.8 billion. Revenue growth will likely be underpinned by anticipated increases in both corporate profit and per capita disposable income, further encouraging shoppers to spend more during their visits to industry establishments. Moreover, oil prices are expected to rebound over the next five years, bolstering industry revenue through higher gasoline prices. However, heightened competition from online retailers will likely pose a threat to industry growth and keep revenue from increasing during the outlook period. The recent outbreak of the COVID-19 (coronavirus) will likely cause an uptick in industry revenue in 2020 alone. However, the impact of the outbreak on the industry is unknown. Even though industry products are considered essential during the pandemic, consumers could fear visiting industry establishments due to its large size and possibility of exposure. As a result, consumers will likely turn to online retailers that could deliver groceries to the consumer's doorstep, limiting contact between each side. Online retailers have gained momentum during the pandemic, and are anticipated to continue to take a share of the market over the five years to 2025.

Macroeconomic drivers

Even though the impact of the coronavirus on the domestic economy is uncertain, industry operators will likely continue to benefit from anticipated improvements in the general economy after it has rebounded from the pandemic. When consumer sentiment and per capita disposable income are high, individuals that are shopping for their households are likely to spend more at industry establishments. Over the five years to 2025, IBISWorld forecasts per capita disposable income to increase at an annualized rate of 1.8%, leading to increased demand from general consumers. Moreover, corporate profit is forecast to rise an annualized 0.2% during the same period. This growth will likely enable businesses that shop at industry establishments, particularly small businesses such nail salons or daycare centers, spend more money on industry-retailed goods.

Furthermore, industry revenue will likely be supported by crude oil prices, which are projected to turn the corner over the five years to 2025. IBISWorld projects the world price of crude oil to be less volatile over the next five years, increasing at an annualized rate of 9.0% during the outlook period. Although the price of gasoline will likely continue to remain low compared with its historical average, this volatility is projected to continue to dictate retail fuel prices and fuel revenue for operators in the industry.

While rising oil prices will likely have a positive effect on industry revenue moving forward, the average industry profit margin is projected to be negatively affected. The Warehouse Clubs and Supercenters industry incurs large purchase costs from transportation activities, as operators are responsible for moving large quantities of goods. Moreover, since industry operators often buy in bulk from overseas manufacturers, shipments are especially large and need to travel long distances. The projected increase in the price of crude oil will likely raise transportation costs, causing the average industry profit margin, measured as earnings before interest and taxes, to fall from 5.1% of revenue in 2020 to 4.8% in 2025.

Rising competition

Despite its consumer appeal, the Warehouse Clubs and Supercenters industry will likely increasingly lose customers to online retailers over the next five years. Industry operators incur significant wage and rent expenses to staff their stores with knowledgeable employees and establish their locations in high-traffic areas. Comparatively, operators in the E-Commerce and Online Auctions industry (IBISWorld report 45411a) are able to sell their products with a website and fewer employees. E-commerce behemoths such as Amazon.com Inc. are developing their own membership options, such as Amazon Prime, to encourage repeat purchases. An Amazon Prime membership, for instance, provides members with free two-day shipping, in addition to several other perks that have increased the appeal of shopping online. Over the five years to 2025, the percentages of services conducted online is forecast to rise at an annualized rate of 4.7%. Overall, increased competition from online retailers will likely keep industry revenue from expanding during the outlook period.

Despite increased competition, industry demand is projected to remain high, encouraging operators to continue opening new facilities. Over the five years to 2025, the number of establishments in this industry is forecast to increase at an annualized rate of 0.5% to 5,932 locations. Likewise, industry employment is

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anticipated to rise an annualized 0.2% to 1.6 million workers during the same period.

Revenue Outlook

Revenue ($m)

IVA ($m)

Estab. (Units)

Enterprises (Units)

Employment (Units)

Exports ($m)

Imports ($m)

Wages ($m)

Domestic Demand

($m)

Per capita disposable income ($)

2020 514,412 82,313 5,777 18.0 1,605,469 N/A N/A 51,378 N/A 46,426

2021 512,287 81,923 5,824 18.0 1,609,877 N/A N/A 51,449 N/A 47,218

2022 509,920 81,399 5,860 18.0 1,612,890 N/A N/A 51,478 N/A 47,999

2023 508,458 81,036 5,878 18.0 1,614,469 N/A N/A 51,489 N/A 48,830

2024 507,851 80,797 5,900 18.0 1,616,251 N/A N/A 51,522 N/A 49,708

2025 507,786 80,613 5,932 18.0 1,620,245 N/A N/A 51,623 N/A 50,665

Industry Life Cycle The life cycle stage of this industry is Mature

NOTE

Key Considerations: An industry's life cycle stage is determined by multiple factors, such as IVA vs. GDP performance and establishment growth. Other qualitative factors must also be considered, which mean that the indicative life cycle stage shown above may not reflect the industry's actual life cycle stage as determined by the analyst. Please refer to the below analysis for more information.

Life Cycle Reasons

o The industry's contribution to the economy is expected to grow roughly in line with GDP

o The industry has wholehearted market acceptance

o The development and use of technology is fairly steady

The Warehouse Clubs and Supercenters industry is in the mature phase of its life cycle. Over the 10 years to 2025, industry value added (IVA), a measure of the industry's contribution to the US economy, is forecast to increase at an annualized rate of 1.3%. Comparatively, GDP is projected to rise at an annualized rate of 1.8% during the same period. IVA that grows roughly in line with the economy as a whole is highly indicative of a mature industry. Slow and steady growth in establishments, coupled with wholehearted market acceptance of the industry and its products, also cement the industry clearly in maturity.

Recently, the use of new industry technology has been limited to the implementation of point-of-sale systems and efficiencies in the supply chain, such as radio frequency identification technology. While these systems have enabled operators to increase store efficiency and better manage inventory over the five years to 2020, large changes in technology are not expected in the next five years. Such a slowdown of technology is also a good indicator of an industry in the mature stage of its life cycle.

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Products & Services Segmentation Supply Chain

Products & Services

The Warehouse Clubs and Supercenters industry provides a range of general merchandise, including: food and beverages, furniture and appliances, health and wellness products, apparel and accessories, fuel and ancillary services.

IBISWorld's estimates reflect the industry as a whole, however, such products as a percentage of sales can vary widely among industry operators.

Food and beverages

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This industry retails a large selection of fresh and processed food products. Most industry operators will sell several varieties of snack food, candy, alcoholic beverages, nonalcoholic beverages, meat, produce, dairy, frozen food, deli products and pet food. Businesses and households, especially those with large families, flock to industry operators for their food and beverage needs to take advantage of discounted prices for consumables in bulk. In recent years, many industry operators have expanded their food and beverage offerings; for example, at the beginning of the period, Costco expanded the offerings of its private-label brand to include organic liquid eggs, organic coconut water, organic 2.0% milk and light beer. In 2020, the food and beverage segment is expected to make up the largest product segment for the industry, accounting for 40.7% of revenue. This represents a slight increase in this segment's share of industry revenue over the five years to 2020.

Home and appliances

Warehouse clubs and supercenters sell various home goods and appliances, including furniture, like couches and patio furniture; electronics, such as TVs and tablets; bed and bath products, such as sheets and towels; small appliances, such as alarm clocks and blenders; large appliances, such as grills and washing machines; home décor, such as picture frames and throw pillows; kitchenware; and lighting. This product segment represents the second-largest for the industry, making up 25.9% of industry revenue in 2020. Over the past five years, this segment's share or revenue has slightly decreased as the prevalence of online retailers like amazon has effectively siphoned demand from this segment of the industry.

Health, beauty and wellness

The health, beauty and wellness segment includes over-the-counter drugs and other health aids, as well as cosmetic lines and sundries such as shampoos, conditioners and lotions. This product segment has somewhat increased its share of revenue over the past five years, as industry operators have increased their portfolios of name-brand products. For example, Costco has increased its selection of health and beauty goods to include Chi hair products and SK-II skin care products during the period. In 2020, IBISWorld estimates that health, beauty and wellness products account for 17.7% of industry revenue.

Apparel and accessories

This segment, which includes clothes, shoes and accessories for women, men and children, is estimated to account for 5.9% of sales in 2020. Over the past five years, this segment's share of revenue has increased due to the growing number of department store to supercenter conversions. For example, Target has recently converted some of its stores that were previously operating in the Department Stores industry (IBISWorld report 45211) into supercenters by expanding to include groceries. Target stores focus strongly on clothing sales; therefore, this segment's share of revenue has expanded as more department store Targets have become industry-relevant supercenters.

Fuel and other

Strong demand for one-stop-shop formats has led many industry operators to provide additional services in their establishments. As a result, this industry is increasingly providing a range of ancillary services, including gas stations, pharmacies and optical stores within store premises. These ancillary products and services represent an estimated 9.8% of industry revenue in 2020. Over the past five years, this segment's share of revenue has slightly fallen, as steep declines in the world price of crude oil have encouraged consumers to fill their tanks wherever is most convenient, rather than wherever is most affordable; since industry operators are rarely placed in central locations, these low gas prices have encouraged consumers to buy fuel elsewhere.

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Demand DeterminantsAcross the general retail sector, sales are typically affected by shifts in household disposable incomes, consumer confidence and business sentiment.

Although these drivers also affect the Warehouse Clubs and Supercenters industry, the industry's low-cost, high-value nature makes it more resistant to downturns in the economy. Moreover, during periods of economic instability, some consumers may even be drawn to warehouse clubs and supercenters because shopping at these retail outlets is generally considered economical.

Since warehouse clubs and supercenters retail a variety of general merchandise and groceries, they are susceptible to fluctuating demand for various types of goods. For instance, demand for apparel and footwear is sensitive to several of factors, including the level of disposable income, changes in fashion and technology, clothing prices, population influx and seasonal weather conditions. Consumer demand for furniture is affected by the level of household income, household construction activity, interest rates, the price of furniture and population growth. Expenditure on housewares and household appliances is largely determined by income levels, the financial flexibility to replace faulty goods and the age distribution of the population. Demand for hardware, tools and garden goods is influenced by the leisure time consumers have available to spend on these tasks compared with the cost of employing the services of a tradesperson. Due to the vast range of goods retailed by this industry, overall demand is not influenced by any one driver, which somewhat shields the industry from drastic swings in revenue.

With convenience becoming more important to consumers, the variety of goods retailed at industry locations helps to boost sales. Time-strapped consumers prefer to shop where they can find all the products they need in one place; this trend has led to several industry players retailing gasoline at their stores. When industry operators can price gasoline more competitively than gas stations, the industry experiences higher demand from customers that are able to conveniently fulfill other shopping needs while also filling their tanks.

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Major Markets

Households are estimated to account for 58.6% of the industry's revenue in 2020.

Within the household segment, there are two main markets separated by income demographic: households earning less than $50,000 and households earning more than $50,000. For the typical retail industry, the level of household income is directly correlated with the amount spent at industry establishments; however, the low-cost, high-value nature of the Warehouse Clubs and Supercenters industry pushes low-income households to spend more at industry establishments. While the majority of industry revenue comes from individual consumers shopping for personal and household items, a significant share of demand also comes from businesses.

Businesses

The Warehouse Clubs and Supercenters industry sells to businesses, primarily smaller ones, which stock their inventory with industry-retailed goods. Such businesses include restaurants, offices, hair and nail salons, daycare centers, schools and motels. In 2020, IBISWorld estimates that 41.4% of the industry's sales are generated from businesses, and that this segment's share of revenue has slightly increased over the past five years.

Households with incomes less than $50,000

Shoppers from households with incomes of less than $50,000 per year represent the largest share of consumer demand; in 2020, IBISWorld estimates that consumers from this income demographic supply the industry with 28.2% of its revenue. This low-income demographic makes up a high share of demand because the industry retails a wide range of products at relatively low prices, which enables operators to capitalize on this price-sensitive market segment. Over the past five years, this market's share of industry demand has remained steady, as low cost-per-use products remain in consistent demand from this income demographic.

Households with incomes greater than $50,000

Consumers that earn more than $50,000 are estimated to make up 30.4% of industry sales in 2020. Over the past five years, this segment's share of revenue has slightly declined, as consumer sentiment has been high, which has pushed wealthier shoppers to splurge at specialty retailers that offer larger selections of specific products than industry establishments. Despite this market's recent decline in demand, sales from this income demographic tend to remain relatively consistent; according to eMarketer analysts, many affluent consumers shop at low-cost, high-value warehouse clubs and supercenters, as price-savvy shopping is a point of pride for many of these wealthy shoppers.

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International Trade Exports in this industry are Low and Steady

Imports in this industry are Low and Steady

Warehouse clubs and supercenters do not directly import or export merchandise; however, they do stock items that have been sourced from international locations. Therefore, imports and exports are accounted for in the relevant upstream manufacturing and wholesaling industries (see the Supply Chain section). Analysis indicates that a significant share of goods stocked by operators is imported from global markets, particularly China, to take advantage of low purchasing costs. The majority of imported merchandise is of a nonperishable nature, such as clothing and small electronics.

Business Locations

Generally, the geographic distribution of establishments in the Warehouse Clubs and Supercenters industry follows population trends, with the Southeast, West and Great Lakes holding large share of both the US population and industry establishments. However, the geographic placement of industry establishments is highly affected by population density, as superstores require a large amount of open space; therefore, it is near impossible to open a superstore in a densely populated metropolis. Ideal locations for warehouse clubs and superstores are areas with access to many consumers, though with a low enough population density that the square footage is available to set up shop.

Southeast

IBISWorld estimates that the Southeast region, which is the most populous region in the United States, accounts for the largest share of industry establishments, holding an estimated 26.8% of total locations in 2020. This region accounts for 25.7% of the national population and holds a significant share of the country's low-income households. According to Citylab, 79.0% of the poorest counties in the United Sates are located in the South; this fact is important because industry operators typically target households with lower incomes, given that price is a key basis of competition. Furthermore, the Southeast is an ideal region for industry establishments because many of the states in the region have mid-range population densities. This level of population density is ideal for industry operators, as establishments thrive in areas with a large consumer market but enough available space to open a sprawling facility.

Great Lakes and Southwest

The Great Lakes region also holds a considerable share of industry establishments and closely follows the US population. The Great Lakes region, with 16.9% of establishments and 14.4% of the population, represents the second-largest distribution of industry establishments and the fourth-largest distribution of the US population. This region is home to Meijer, a popular family-owned supercenter, which is headquarters in Grand Rapids, MI. This popular Midwest chain has a significant presence in Michigan (4.2% of total establishments), Ohio (3.9% of total establishments), Indiana, Wisconsin, Kentucky and Illinois.

The Southwest is home to the fourth-largest share of industry establishments, with 13.0%, and the fifth- largest share of the US population, with 12.7%. Texas, which is located in this region, has the second largest distribution of industry establishments, holding 8.3%, which is in line with the 8.7% of the population that is located in the state. Like the Southeast, the Southwest and Great Lakes regions are ideal for supercenters and warehouse clubs due to their high populations and ample available land.

West and Mid-Atlantic

The West and Mid-Atlantic are the second- and third-most populous regions in the United States, respectively, they account for much smaller share of industry establishments. This disparity is due to high population and wealth concentrations in these areas. Although the Mid-Atlantic holds 15.1% of the US population, the region only accounts for 11.8% of industry establishments; this is because much of the region's population is concentrated in densely populated metropolitan areas like New York City, which are not geographically equip to hold large facilities, like supercenters. Furthermore, because the industry targets low-income households, high-income regions like the Mid-Atlantic and West are not ideal markets for industry establishments; the West, which holds some of the wealthiest cities in the country, holds 15.1% of industry establishments and 17.2% of the population. In fact, California is the state with the highest concentration of industry establishments at 8.6% due to its large size and population density.

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Competitive Landscape Market Share Concentration

Concentration in this industry is High

The Warehouse Clubs and Supercenters industry is highly concentrated, with the top four companies expected to comprise the majority of industry revenue in 2020. Of these four companies, the largest two, Walmart Inc. (Walmart) and Costco Wholesale Corp., account for 73.2% and 20.6% of industry market share, respectively. Very few companies operate in this industry, with the numbers of industry enterprises expected to stand at a low 18 companies in 2020. The prevalence of industry behemoths such as Walmart, make it difficult for new operators to successfully enter the industry. Given the high level of industry concentration and substantial capital required to generate enough revenue to compete with the major players, IBISWorld expects concentration to remain high and industry entrants to remain low.

Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

 Having a loyal customer base: Since some stores require paid membership, operators in this industry should ensure that consumers' needs are met.

 Ability to control stock on hand: Operators in this industry need to have stringent control measures to ensure that popular items are reordered, low-selling stock is disposed of and a sufficient product range is available.

 Having a wide and expanding product range: Operators should supply a wide range of products that is comparable with external competitors, such as supermarkets, grocery stores, department stores and furniture stores.

 Economies of scale: Economies of scale help industry participants lower the cost of doing business, which translates into lower prices for consumers.

 Control of distribution: Industry operators compete on value offerings. To maintain low prices, operators often control their own distribution facilities or maintain strict agreements with distributors.

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Cost Structure Benchmarks

Profit

The average industry profit margin, measured by earnings before interest and taxes, is expected to comprise 5.1% of revenue in 2020. Profit has increased from 4.7% in 2015. The recent drop in the price of crude oil has had a positive effect on the industry, as transportation costs are high for industry operators. Warehouse clubs and supercenters buy in bulk, and are therefore transporting large amounts of inventory. As the world price of crude oil fell, operators saved on transportation costs throughout the supply chain, which sustained profit margins during the current period.

Wages

IBISWorld estimates that wages will account for 10.0% of industry revenue in 2020, which represents an increase from 2015. In recent years, industry behemoth Walmart, which employs the vast majority of the industry's 1.6 million total employees, implemented an increase to the company's minimum wage. Furthermore, the company is currently in the process of decreasing the average time it takes for an employee to receive a raise. This could cause average industry wages to continue increasing as a share of total revenue, as a great deal of the total industry's wages are paid out by Walmart.

Purchases

As is typical of industries in the retail sector, purchase costs are the largest operating expense. This cost category consists of goods purchased from vendors for resale to consumers. Products in this category include a general line of groceries, apparel, furniture and appliances, as well as any other good sold in an industry establishment. Due to the large-scale nature of this industry, most merchandise is sourced directly from manufacturers and then shipped to selling warehouses or to a depot. Purchasing from manufacturers instead of distributors enables players in this industry to eliminate many of the costs associated with multiple-step distribution channels. Merchandise selected for sale in warehouse stores is designed to appeal to both business and consumer clients. IBISWorld estimates that purchase costs as a share of industry revenue will reach 66.8% in 2020, which represents an increase over the past five years as the price of most consumer goods sold at superstores has increased over the five years to 2020.

Marketing

Marketing costs are expected to account for 1.7% of total industry revenue in 2020 and have decreased over the past five years. Operators in this industry advertise through various media depending on their size and cost constraints; smaller operators tend to use newspapers, catalogs and sometimes radio advertising, while larger players can afford network and cable TV advertising. The majority of the industry's advertising is undertaken during the holiday season, which is the industry's busiest period.

Depreciation

Operators in this industry depreciate a variety of assets over time. The cost of depreciation invariably fluctuates between operators depending on their size and the number and types of assets involved. Items

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that depreciate include shelving displays and computer scanners. Retail depreciation is often low compared with other industries such as manufacturing, which usually have depreciation rates between 2.0% and 3.0%. Depreciation costs have remained fairly consistent in recent years, and IBISWorld estimates that depreciation will account for 0.9% of revenue in 2020.

Rent

Rental costs are expected to account for 6.2% of total industry revenue and have decreased slightly over the past five years.

Utilities

Utilities costs are expected account for just 1.5% of total industry revenue in 2020.

Other Costs

Other costs include administrative expenses. Overall, these costs are expected to account for 7.8% of total industry revenue in 2020.

Basis of Competition Competition in this industry is High and the trend is Increasing

Competition within the Warehouse Clubs and Supercenters industry has undergone considerable change over the past few decades.

When Price Club, a former major player, pioneered the membership warehouse concept in 1976, the main companies selling comparable merchandise were department stores, grocery stores and traditional wholesalers. Since that time, new merchandising concepts and marketing techniques have led to an intense and focused competitive environment, where the top two players account for the overwhelming majority of industry revenue.

Internal competition

Operators in this industry primarily compete on the basis of price, as the retail model used by industry players pushes shoppers to buy in bulk to achieve cost savings through low price-per use. This price model is attractive to a large number of consumers. Based on these consumer preferences and the warehouse club business model, industry operators compete with one another to offer the lowest per-unit cost on desirable consumer products. The player that can offer the most per-unit cost savings on the largest variety of products will attract the most shoppers.

Customer loyalty is another important competitive factor. To encourage customers to return, stores provide convenient front parking, logical layouts, clear signage, generous operating hours and convenient locations. A clean, friendly and professional atmosphere is also maintained in these stores. Furthermore, industry operators compete through stocking a wide range of goods that is comparable with competing stores. For instance, it is becoming increasingly important for retailers to stock a large variety of high- demand grocery items and perishable goods. Additionally, industry operators encourage repeat customers through loyalty cards, which push consumers to buy more to incur better cost savings or earn cash back.

Due to the land size required to develop warehouse clubs and supercenters, competition for prime location is fierce. The ideal location for an industry establishment is very specific: populous enough that many consumers have easy access to the store, though secluded enough that the necessary square footage is available and reasonably priced. Small cities and large city suburbs are ideal locations for industry operators, and major industry players heavily compete for prime establishment locations.

External competition

The industry is subject to external competition from a range of operators outside of the industry that supply a similar line of products. Each of the following industries supplies products that are also sold by club stores and supercenters, providing consumers with an alternative store from which to make their purchases. Some of the specialty retailers include: furniture stores, which supply new household, outdoor and office furniture; home furnishing stores that supply new home furnishings; supermarkets that stock general lines of food products; hardware stores that supply a general line of new hardware items, such as tools and builders' hardware; convenience stores; clothing stores; department stores; and dollar and variety stores. External industries generally compete with the industry and each other on product range, brands offered, store design, location, customer service and price. Online retailers pose the largest threat to the industry due to their ability to effectively compete on the basis of price through lower overhead costs. Competition from such retailers is increasing as major companies like Amazon improve their

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delivery speed and cost.

Barriers to Entry Barriers to Entry in this industry are High and the trend is Steady

The industry has a high level of concentration with the top two players expected to account for an estimated 93.5% of market share in 2020; therefore, prospective operators planning to enter this industry will encounter high barriers to entry in the form of competition from existing operators.

The dominance of players fluctuates by region; therefore, the barriers for a potential industry entrant vary depending on where it plans to launch stores.

Start-up costs

Construction and development costs for a full-size (i.e. 112,000 square feet or lager) store range from $5.0 million to $8.0 million. Land acquisition costs for a club generally range from $3.0 million to $5.0 million but can be significantly higher in some locations. These significant construction costs serve as a large barrier to entry for new industry players.

Large club stores and supercenters benefit from significant discounts in purchasing, distribution and advertising due to their size. To set up a large and competitive store, considerable capital is required to purchase merchandise, purchase or lease a physical establishment and hire and train employees. To boost awareness of an unfamiliar retail brand, advertising may also add to costs. In some regions, players may experience difficulty obtaining planning permission for large-scale retail outlets and the legal and administrative costs of appealing against unfavorable planning board decisions can add an additional entry barrier not encountered in other retail sectors.

Distribution networks

Due to the expansive reach of the industry, competition for getting products onto the shelves of warehouse clubs and supercenters among manufacturers is fierce, which results in favorable purchasing terms for operators in the industry. Establishing size to garner the same purchasing clout as major players can pose a major barrier to new entrants.

Suppliers of products to the club stores and supercenters include manufacturers and distributors. Prominent industry operators buy from a large number of suppliers, ensuring that they are not reliant on any one in particular. Companies may have long-term relationships with suppliers; however, there are generally few long-term contracts that would prevent a new company from entering the industry.

The preexistence of relationships between operators and suppliers may in some cases be viewed as a barrier to entry. Existing operators have built trust and loyalty with their suppliers over a period of time. For instance, retailers, such as Walmart, have locked in the supply base across most fresh food categories and are simply not accessible to other suppliers. This loyalty means food retailers, especially those wanting to establish a relationship with produce suppliers and growers, experience a limited pool of choices. In addition, there has been a notable consolidation in the past decade among US produce suppliers and growers, thus making it even more difficult to select an appropriate vendor.

Barriers to Entry Checklist

Competition High

Concentration High

Life Cycle Stage Mature

Technology Change Medium

Regulation & Policy Light

Industry Assistance None

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Industry Globalization Globalization in this industry is Low and the trend is Increasing

Industry operators are predominantly domestically owned and earn their revenue from domestic operations. However, companies are increasingly expanding their operations internationally. Costco Wholesale Corp., for instance, operates stores in Canada, Mexico, the United Kingdom, Japan, South Korea, Taiwan, Australia and Spain; in fiscal 2019 (latest data available), 30.2% of Costco's total revenue came from its international operations. Walmart has operations in 11 countries outside of the United States, including Canada, Australia, Japan, Mexico and the United Kingdom. While retail in overseas markets makes up a substantial share of several operators' revenue, the majority of revenue produced by these players comes from the US market.

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Major Companies Major Players

Walmart Inc.

Market Share: 73.2% Brand Names: Walmart Supercenters, Sam's Club

Walmart Inc. (Walmart) is the world's largest retailer and grocery chain by sales. The company, which was incorporated in 1969, is headquartered in Bentonville, AR, and currently employs 2.2 million global employees to operate 11,361 retail locations. The majority of Walmart's presence is in the United States, with 5,368 retail locations throughout the country. Walmart operates supercenters, discount stores, warehouse clubs and neighborhood markets, with supercenters and warehouse clubs representing the majority of the company's total locations. In fiscal 2020 (year-end January), Walmart reported $524.0 billion in total company revenue (latest data available).

The company operates four separate divisions: Walmart International, Walmart US, Sam's Club and Global eCommerce. Walmart International has retail and wholesale operations in 27 countries outside of the United States, including Canada, China, Japan and India; however, none of these activities are industry relevant.

Walmart US is made up of: supercenters, which offer general merchandise and a full line of groceries; discount stores, which retail general merchandise and limited groceries; and neighborhood markets,

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which only sell groceries. Of these three store models, only supercenters are industry-relevant. Walmart's Sam's Club segment, which started in 1983, is entirely industry-relevant, as these retail outlets are all membership-only warehouse clubs. Sam's Club sells larger packaging units and has a limited stock-keeping unit count. In fiscal 2020, Walmart operated 599 Sam's Club locations and 3,570 Walmart US supercenters.

Financial performance

Over the five years to fiscal 2021 (year-end January), Walmart's industry-specific revenue, generated from both the company's supercenter stores and Sam's Club division, has increased at an annualized rate of 3.2% to $375.1 billion. The majority of growth is attributable to high supercenter demand, which has led to rapid expansion in the number of supercenter locations over the past five years. Sam's Club has experienced more subdued growth during the current period, including a contraction within the period. As a result, revenue for this segment has increased at a slightly slower rate. On the other hand, profit has contracted at an annualized rate of 1.1% during the period.

Costco Wholesale Corporation

Market Share: 20.6% Brand Names: Costco, Kirkland

Founded in 1983 in Seattle, WA, Costco Wholesale Corporation (Costco) is the largest membership-only warehouse club in the United States. By providing low prices on consumables such as fresh foods, health and beauty care items, high-quality apparel, electronics, hardware, jewelry and other general merchandise, the company operates under a club model that encourages members to visit regularly to achieve savings. Customers become members by paying an annual fee to shop at Costco stores. This membership format is designed to promote customer loyalty and solidify a recurring revenue stream, which helps the company lower retail prices. Costco member renewal rates are strong, with US-member renewal standing at 91.0% in fiscal 2019 (year-end September). In fiscal 2019, Costco generated $149.4 billion in total company revenue (latest data available).

With its headquarters in Issaquah, WA, Costco currently operates 546 membership warehouses in the United States and employs more than 254,000 workers. Company warehouses stock an average of 3,800 products, ranging from alcoholic beverages and appliances to fresh food and furniture. Costco retails its own private-label brand, Kirkland Signature, which includes products ranging from household goods, such as liquid dish soap and napkins, to food and beverages, such as nuts and juices, and even includes a line of clothing. In 2015, Kirkland Signature released several new products, including organic liquid eggs, organic coconut water, organic 2.0% milk and light beer. Additionally, Costco has expanded its portfolio of non-Kirkland Signature products to include Cole Haan shoes, Chi hair products and SK-II skincare products.

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In February 2015, the company announced that it would be ending its 16-year partnership with American Express Company due to its inability to reach favorable future terms. The company subsequently announced a partnership with Visa Inc. and Citigroup Inc., which began in June 2016. The new Costco credit cards associated with the change have no annual fee and offer cash back on purchases.

Financial performance

Over the five years to fiscal 2020 (year-end August), Costco's industry-relevant revenue has increased at an annualized rate of 6.6% to reach $106.1 billion. Additionally, the company's industry-relevant profit, measured as earnings before interest and taxes, is has expanded at an annualized rate of 6.6% during the same period. Steady increases in both revenue and profit have occurred as Costco has increased its provision of higher-end brands and expanded its portfolio of Kirkland Signature items. Despite significant revenue gains, Costco has only slowly expanded its number of facilities, as overexpansion is the biggest threat to Costco's growth. Building new stores relatively close to existing stores siphons customers away from older stores. In fiscal 2019 alone, Costco opened 16 new facilities in the United States.

Other Companies BJ’s Wholesale Club Inc.

Headquartered in Westborough, MA, BJ's Wholesale Club Inc. (BJ's) is one of the nation's largest membership warehouse clubs. Founded in 1984, BJ's currently operates more than 210 traditional big-box warehouse clubs in 15 states and employs more than 25,000 workers. Its stores, which average an estimated 113,000.0 square feet in size, are concentrated in the Northeast region of the United States and offer an estimated 7,500 general merchandise items, as well as gas and services. Its wide assortment of goods provides members with a larger merchandise variety compared with its main competitors, Costco Wholesale Corp. and Walmart Inc.'s Sam's Club division. After seven years of private ownership, BJ's returned to its previous state as a public company in July 2018.

BJ's offers two types of membership levels: business and inner circle. Inner-circle members are generally homeowners with above-average income relative to their geographic area. Membership fees are $50.00 per year for both business and inner-circle members and, similar to other wholesale clubs, such membership offers foster customer loyalty. In addition to regular memberships, BJ's offers high-frequency, high-volume members a reward membership program, which provides a 2.0% rebate for a higher membership fee of $100.00 on nearly all in-club purchases. The company has made a greater push to convert existing inner-circle members to reward members in recent years. Just prior to the period, the company partnered with MasterCard Inc. to give customers either 3.0% or 5.0% back with a BJ's store credit card. In 2020, IBISWorld estimates that BJ's will generate $13.9 billion in industry-relevant revenue.

Meijer Inc.

Founded in 1934, Meijer Inc. (Meijer) is a family-owned supercenter retailer that operates more than 200 supercenters and employs more than 72,000 workers. The company is headquartered in Grand Rapids, MI, and operates the majority of its stores in the state. The remainder of Meijer's establishments are spread throughout Ohio, Indiana, Illinois, Kentucky and Wisconsin. Meijer opened its first grocery store during the Great Depression, which eventually evolved into the nation's first supercenter. As the first to coin the one- stop shop model, Meijer stores now include fresh produce and meat departments, pharmacies, comprehensive electronics departments, garden centers and apparel offerings. The retailer offers about 120,000 lines of goods in large-scale stores that average between 200,000.0 and 250,000.0 square feet in size. In March 2017, Meijer announced that it plans to spend $375.0 million on the construction of new stores and remodeling of old stores. The investment includes the creation of seven new stores and remodeling of 22 facilities. Meijer is a private company and does not release its financial information to the public. However, IBISWorld estimates that the company will generate $19.4 billion in industry-relevant revenue in 2020.

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Operating Conditions Capital Intensity

The level of capital intensity is Low

The Warehouse Clubs and Supercenters industry has a low level of capital intensity. For every dollar spent on wages, the industry spends $0.09 on capital expenditures, though this ratio varies among operators. IBISWorld analysis suggests that the warehouse club segment of this industry is more capital intensive than the supercenter segment. This is primarily because warehouse clubs keep merchandise stored on racks above the sales floor and displayed on pallets containing large quantities of each item. Industry operators invest a considerable amount into shelving and also purchase or rent machinery, such as forklifts, to move and transport the pallets of merchandise about the warehouse. Supercenters, conversely, display merchandise much like supermarkets and department stores. Store layouts consist of basic shelving where merchandise is displayed individually and a large inventory area where the rest of the merchandise is stored. Merchandise is stocked on display shelves manually by staff.

Capital expenditure in this industry primarily comes in the form of fixtures, fittings, cash registers and forklifts. More than a decade ago, the industry underwent changes in the implementation of centralized, automated checkout stands. The implementation of this technology simplified labor tasks and also enabled operators to adjust prices without remarking merchandise. Labor costs, however, are incurred through the hiring of employees to serve consumers. Other tasks undertaken by employees include processing consumer purchases and restocking shelves (either with forklifts, in the case of warehouse clubs, or manually in supercenters).

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Technology & Systems Level Factor Disruption Description

Low Rate of Innovation

Unlikely A ranked measure for the number of patents assigned to an industry. A faster rate of new patent additions to the industry increases the likelihood of a disruptive innovation occurring.

Medium Innovation Concentration

Potential A measure for the mix of patent classes assigned to the industry. A greater concentration of patents in one area increases the likelihood of technological disruption of incumbent operators.

Very Low

Ease of Entry Very Unlikely

A qualitative measure of barriers to entry. Fewer barriers to entry increases the likelihood that new entrants can disrupt incumbents by putting new technologies to use.

Low Rate of Entry Unlikely Annualized growth in the number of enterprises in the industry, ranked against all other industries. A greater intensity of companies entering an industry increases the pool of

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potential disruptors.

Medium Market Concentration

Potential A ranked measure of the largest core market for the industry. Concentrated core markets present a low-end market or new market entry point for disruptive technologies to capture market share.

Technology & Systems

The level of technology change is Medium

Technology and scale are at the core of the Warehouse Clubs and Supercenters industry's advantage over competing industries.

Across the retail sector, stores that belong to chains tend to be more efficient than single-store retailers and chains tend to invest more in information technology. Improvements in point-of-sale (POS) equipment have brought greater efficiencies to merchandising, distribution, sales and stock markdowns. For instance, inventory controlling radio frequency identification (RFID) stores more product information and can be scanned from a further distance than traditional bar codes. RFID provides real-time information on inventory, helping to reduce shrinkage problems and improve efficiency. Major player Walmart was a forerunner in rolling out RFID and has the ability to track all items throughout its supply chain. Increased knowledge and information enable retailers to minimize store shrinkage. RFID chips range in cost from $0.05 to $0.07 each, making them relatively affordable for medium-sized store chains. Over the next five years, prices on RFID chips are expected to drop to $0.01 from $0.03 per chip, making RFID a viable tracking technology for even trivial items, as well as smaller store chains.

Operators use centralized, automated checkout stands to process sales. Most items are not individually price-marked but, instead, have bar codes so they can be scanned into electronic cash registers. This technology enables operators to change prices without remarking merchandise. Walmart is currently experimenting with additional checkout options, including providing customers with checkout wands that let consumers scan their products as they shop. In general, data collected by POS systems is analyzed daily for replenishment purposes.

Retailers are also increasingly optimizing their websites for mobile shopping, with e-commerce picking up as an alternative sales medium and marketing tool. E-commerce offers shoppers the ability to browse and purchase items from the comfort of their home or mobile internet connection and provides warehouse clubs and supercenters the opportunity to sell outside their local market area.

With losses incurred as a result of theft, security and loss prevention advancements used by retailers include closed-circuit TV cameras, source tagging, signature-capture technology (this is used at the POS terminal for credit card transactions) and fingerprint-scanning systems that verify customers' identities. RFID can also be used to reduce theft. The technology tracks products from the time they leave the assembly line to the time they leave the store by releasing continuous signals from a chip. These chips have been inserted in the product at the manufacturing stage and are monitored by a radio frequency receiver.

Industry operators are increasingly requiring new technology to use in the prevention of credit and debit card information security breaches. In the prior five-year period, Target Corp. experienced one of the worst data security breaches of all time, as 40.0 million customers had their card information stolen during peak holiday shopping season. Information breaches like these turn off customers and can cause industry operators to lose revenue. To combat data breaches, industry operators invest in complex technology and high-skilled IT teams.

Revenue Volatility The level of volatility is Low

Changes in consumer confidence, unemployment and disposable income drive consumer spending on goods supplied by this industry. Since the industry typically retails products with low prices, sales often reach higher levels during tough economic times. Competition between industry operators and retailers, such as discount department stores, also influences revenue prospects for this industry. Revenue is also somewhat affected by gas prices; when gas prices are high, consumers become more likely to seek out less expensive places to fill up. Warehouse clubs and supercenters are often able to leverage their

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economies of scale to retail gas at lower prices, which attracts consumers. Additionally, shoppers that are lured in by low gas prices are more likely to fulfill their shopping needs at the industry establishment, as they are now close to the plethora of other goods that the establishment sells. Despite these drivers, revenue volatility in this industry is low.

Regulation & Policy The level of regulation is Light and the trend is Steady

Regulations specific to the Warehouse Clubs and Supercenters industry mainly pertain to pricing and size. Some state laws require that operators apply minimum markups to the selling prices for specific goods, such as tobacco products, alcoholic beverages and gasoline. Additionally, some states, counties and municipalities have enacted or proposed laws and regulations that prevent or restrict the operations or expansion plans of certain large retailers and warehouse clubs within their jurisdictions.

Regulations relevant to the retail industry in general are covered by individual states. Congress and the state enact trade regulations with the aim of maintaining a free and competitive economy. The Sherman Act, Clayton Act and Robinson-Patman Act form the basis for antitrust actions before the courts. These acts prohibit the formation of monopolies, ban price discrimination and offer protection to independent business owners.

States have enacted their own antitrust laws to ensure that the general public is provided with the best prices, quality and choices. Companies must comply with the Fair Labor Standards Act and various state laws governing a range of matters, such as minimum wage, overtime and other working conditions. Storeowners must also comply with the provisions of the Americans with Disabilities Act of 1990, as amended, which requires that stores be accessible to customers with disabilities.

The laws that affect credit programs offered by retailers include the Federal Consumer Credit Protection Act (Truth in Lending), which specifies written disclosure of information relating to financing. The Federal Fair Credit Reporting Act specifies certain disclosures to potential customers concerning credit information that can be used to deny credit. Also, the Federal Equal Credit Opportunity Act prohibits discriminating against any credit applicants based on certain grounds and the Fair Debt Collection Practices Act regulates how payments are collected on credit accounts.

Industry participants are also subject to environmental regulations imposed by federal, state and local authorities in relation to the generation, handling, storage, transportation and disposal of waste and biohazardous materials, as well as the sale and distribution of products. For instance, the Occupational Safety and Health Administration (OSHA) has guidelines regarding how specialty food stores must train their employees, check out items and stock products. Operators are further subject to regulation by the US Food and Drug Administration, the US Department of Agriculture, the Occupational Health and Safety Administration and the Environment Protection Agency.

Industry Assistance The level of industry assistance is None and the trend is Steady

The government does not provide any direct assistance to the Warehouse Clubs and Supercenters industry. Tariffs are applicable to merchandise that has been sourced from a variety of locations; warehouse clubs and supercenters purchase items from importers or wholesalers after the tariff has been applied. Consequently, a change in the tariff rate will influence where the good is purchased and will alter the purchase price. A decline in the tariff rate of a particular item may result in falling purchasing costs, which can be passed onto consumers and help retailers remain price competitive.

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Warehouse Clubs and Supercenters do, however, receive indirect assistance from industry associations, such as the International Council of Shopping Centers and the National Retail Federation. These organizations represent industry operators and members by advocating for, communicating with and providing education to consumers and employees as to better provide merchandise and services.

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Key Statistics Industry Data

Revenue

($m) IVA

($m) Establishments

(Units) Enterprises

(Units) Employment

(Units) Exports

($m) Imports

($m) Wages

($m)

Domestic Demand

($m)

Per capita disposable income ($)

2011 450,903 60,787 4,587 17.0 1,313,457 N/A N/A 36,889 N/A 38,780

2012 465,281 65,301 5,164 32.0 1,394,352 N/A N/A 39,711 N/A 39,784

2013 471,949 63,370 5,162 12.0 1,420,442 N/A N/A 38,829 N/A 39,004

2014 478,775 65,143 5,307 16.0 1,434,227 N/A N/A 40,725 N/A 40,310

2015 483,069 70,652 5,585 18.0 1,501,899 N/A N/A 44,084 N/A 41,670

2016 486,979 69,278 5,601 17.0 1,556,821 N/A N/A 45,416 N/A 42,108

2017 490,496 67,723 5,545 17.0 1,536,364 N/A N/A 47,123 N/A 43,056

2018 488,481 78,752 5,524 17.0 1,531,103 N/A N/A 48,955 N/A 44,521

2019 482,786 77,107 5,591 17.0 1,530,959 N/A N/A 48,837 N/A 45,581

2020 514,412 82,313 5,777 18.0 1,605,469 N/A N/A 51,378 N/A 46,426

2021 512,287 81,923 5,824 18.0 1,609,877 N/A N/A 51,449 N/A 47,218

2022 509,920 81,399 5,860 18.0 1,612,890 N/A N/A 51,478 N/A 47,999

2023 508,458 81,036 5,878 18.0 1,614,469 N/A N/A 51,489 N/A 48,830

2024 507,851 80,797 5,900 18.0 1,616,251 N/A N/A 51,522 N/A 49,708

2025 507,786 80,613 5,932 18.0 1,620,245 N/A N/A 51,623 N/A 50,665

Annual Change

Revenue

(%) IVA (%)

Establishments (%)

Enterprises (%)

Employment (%)

Exports (%)

Imports (%)

Wages (%)

Domestic Demand

(%)

Per capita disposable

income (%) 2011 2.83 8.21 0.94 -29.2 -1.63 N/A N/A -1.15 N/A 1.61

2012 3.18 7.42 12.6 88.2 6.15 N/A N/A 7.64 N/A 2.58

2013 1.43 -2.96 -0.04 -62.5 1.87 N/A N/A -2.23 N/A -1.97

2014 1.44 2.79 2.80 33.3 0.97 N/A N/A 4.88 N/A 3.34

2015 0.89 8.45 5.23 12.5 4.71 N/A N/A 8.24 N/A 3.37

2016 0.80 -1.95 0.28 -5.56 3.65 N/A N/A 3.02 N/A 1.05

2017 0.72 -2.25 -1.00 0.00 -1.32 N/A N/A 3.75 N/A 2.25

2018 -0.42 16.3 -0.38 0.00 -0.35 N/A N/A 3.88 N/A 3.40

2019 -1.17 -2.09 1.21 0.00 -0.01 N/A N/A -0.25 N/A 2.38

2020 6.55 6.75 3.32 5.88 4.86 N/A N/A 5.20 N/A 1.85

2021 -0.42 -0.48 0.81 0.00 0.27 N/A N/A 0.13 N/A 1.70

2022 -0.47 -0.64 0.61 0.00 0.18 N/A N/A 0.05 N/A 1.65

2023 -0.29 -0.45 0.30 0.00 0.09 N/A N/A 0.02 N/A 1.73

2024 -0.12 -0.30 0.37 0.00 0.11 N/A N/A 0.06 N/A 1.79

2025 -0.02 -0.23 0.54 0.00 0.24 N/A N/A 0.19 N/A 1.92

Key Ratios

IVA/Revenue

(%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($'000)

Wages/ Revenue

(%)

Employees per estab. (units) Average Wage ($)

2011 13.5 N/A N/A 343 8.18 286 28,086

2012 14.0 N/A N/A 334 8.53 270 28,480

2013 13.4 N/A N/A 332 8.23 275 27,336

2014 13.6 N/A N/A 334 8.51 270 28,395

2015 14.6 N/A N/A 322 9.13 269 29,352

2016 14.2 N/A N/A 313 9.33 278 29,172

2017 13.8 N/A N/A 319 9.61 277 30,672

2018 16.1 N/A N/A 319 10.0 277 31,974

2019 16.0 N/A N/A 315 10.1 274 31,900

2020 16.0 N/A N/A 320 9.99 278 32,002

2021 16.0 N/A N/A 318 10.0 276 31,958

2022 16.0 N/A N/A 316 10.1 275 31,917

2023 15.9 N/A N/A 315 10.1 275 31,892

2024 15.9 N/A N/A 314 10.1 274 31,878

2025 15.9 N/A N/A 313 10.2 273 31,861

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Industry Financial Ratios

Liquidity Ratios Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Current Ratio 2.0 2.0 2.3 1.9 2.2 1.6 1.6 Quick Ratio 0.4 0.6 0.4 0.5 0.6 0.4 0.3 Sales / Receivables (Trade Receivables Turnover) 219.7 391.1 333.5 135.1 163.6 71.4 213.7

Days' Receivables 1.7 0.9 1.1 2.7 2.2 5.1 1.7 Cost of Sales / Inventory (Inventory Turnover) 3.5 4.1 3.3 3.9 3.7 4.5 3.3

Days' Inventory 104.3 89.0 110.6 93.6 98.6 81.1 110.6 Cost of Sales / Payables (Payables Turnover) 15.1 14.0 15.1 12.3 14.9 10.2 11.3

Days' Payables 24.2 26.1 24.2 29.7 24.5 35.8 32.3 Sales / Working Capital 10.4 10.8 9.1 9.8 8.2 12.0 8.3

Coverage Ratios Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Earnings Before Interest & Taxes (EBIT) / Interest 5.0 6.9 7.4 7.1 6.1 9.8 8.6

Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 3.4 8.5 5.5 3.3 N/A N/A N/A

Leverage Ratios Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Fixed Assets / Net Worth 0.6 0.4 0.3 0.3 0.1 0.3 0.5 Debt / Net Worth 2.0 1.4 1.7 1.8 1.9 4.7 1.6 Tangible Net Worth 27.2 27.5 19.6 30.1 29.9 24.9 38.0

Operating Ratios Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Profit before Taxes / Net Worth, % 29.7 29.4 32.5 24.3 19.3 32.2 29.3 Profit before Taxes / Total Assets, % 7.1 9.1 9.5 7.6 7.0 8.4 8.1 Sales / Net Fixed Assets 25.8 32.3 34.1 37.1 60.5 30.7 20.6 Sales / Total Assets (Asset Turnover) 2.6 3.1 3.0 3.0 3.8 2.8 2.9

Cash Flow & Debt Service Ratios (% of sales)

Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Cash from Trading 36.7 34.5 36.4 33.2 34.6 33.5 32.1 Cash after Operations 3.4 2.9 3.3 2.7 2.7 3.5 2.2 Net Cash after Operations 3.7 3.1 2.8 2.6 3.2 1.7 1.8 Cash after Debt Amortization 0.7 0.8 0.8 0.9 1.0 0.7 0.2 Debt Service P&I Coverage 2.2 3.5 3.7 2.7 3.1 3.0 2.2 Interest Coverage (Operating Cash) 5.0 7.9 6.0 3.9 3.5 6.2 4.8

Assets, % Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Cash & Equivalents 10.7 14.4 13.1 12.8 13.2 12.5 12.2 Trade Receivables (net) 9.7 9.4 8.5 12.6 14.7 10.9 8.9 Inventory 47.6 45.7 49.5 49.2 52.7 45.5 44.5 All Other Current Assets 2.2 1.7 2.3 1.8 0.8 2.3 3.9 Total Current Assets 70.2 71.3 73.4 76.4 81.5 71.3 69.4 Fixed Assets (net) 19.5 17.3 15.9 14.4 11.3 17.4 19.3 Intangibles (net) 2.9 5.8 3.6 3.9 3.4 2.9 6.9 All Other Non-Current Assets 7.4 5.7 7.1 5.2 3.9 8.4 4.3 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 2,094.7 1,220.0 1,528.7 1,781.0 86.6 308.2 1,386.2

Liabilities, % Apr 13 - Mar 14

Apr 14 - Mar 15

Apr 15 - Mar 16

Apr 16 - Mar 17

Small (<$10m)

Medium ($10-$50m)

Large (>$50m)

Notes Payable-Short Term 11.1 11.4 13.9 9.6 11.1 7.6 8.3 Current Maturities L/T/D 1.9 1.9 1.7 2.2 1.5 3.7 1.8 Trade Payables 17.8 19.6 17.3 21.8 22.1 23.1 19.1 Income Taxes Payable 0.1 0.1 0.2 0.1 0.1 0.0 0.3 All Other Current Liabilities 10.6 10.0 12.4 12.3 13.8 11.4 9.1 Total Current Liabilities 41.5 43.0 45.4 46.0 48.7 45.8 38.6 Long Term Debt 15.0 13.7 15.3 13.5 10.5 21.4 10.6 Deferred Taxes 0.3 0.1 0.2 0.2 0.0 0.1 0.8 All Other Non-Current Liabilities 13.0 10.0 16.0 6.4 7.6 4.9 5.1 Net Worth 30.1 33.3 23.2 34.0 33.3 27.8 44.9 Total Liabilities & Net Worth ($m) 2,094.7 1,220.0 1,528.7 1,781.0 86.6 308.2 1,386.2

Maximum No. of Statements Used 128.0 142.0 127.0 111.0 60.0 30.0 21.0

Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institution's borrowers and

prospects

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Additional Resources National Retail Federation http://www.nrf.com

International Council of Shopping Centers http://www.icsc.org

Grocery Manufacturers Association http://reimagine.gmaonline.org

Food Marketing Institute http://www.fmi.org

American Apparel and Footwear Association http://www.aafaglobal.org

Occupational Safety and Health Administration http://www.osha.gov

Industry Jargon COMPARABLE STORE SALES A retail measure used to assess the true performance of retail outlets by taking out the effect of new store openings and only looking at sales growth of existing stores.

HOMOGENEOUS GOODS Items that are similar among retailers, with little or no differentiation.

LARGE-FORMAT STORE A retail store that is differentiated by its sheer size and large range of products, including electronics, household goods and other consumer products.

MASS MERCHANDISER A large retail store that offers a wide range of product categories.

POINT OF SALE (POS) A system used at checkout in retail stores using computers and cash registers to capture transaction data at the time and place of sale.

RADIO FREQUENCY IDENTIFICATION (RFID) A technology that tracks products from the time they leave the assembly line to the time they leave the store by releasing continuous signals from a chip.

STOCK KEEPING UNITS (SKUS) Codes used by retailers to identify the lowest level of product detail.

Glossary BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the "real" growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE

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A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry's contribution to GDP, or profit plus wages and depreciation.

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry's life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry's products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

REGIONS West | CA, NV, OR, WA, HI, AK<br/>Great Lakes | OH, IN, IL, WI, MI<br/>Mid-Atlantic | NY, NJ, PA, DE, MD<br/>New England | ME, NH, VT, MA, CT, RI<br/>Plains | MN, IA, MO, KS, NE, SD, ND<br/>Rocky Mountains | CO, UT, WY, ID, MT<br/>Southeast | VA, WV, KY, TN, AR, LA, MS, AL, GA, FL, SC, NC<br/>Southwest | OK, TX, NM, AZ

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

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