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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 1
IBISWorld Industry Report 45399 Small Specialty Retail Stores in the US April 2017 Robert Miles
Shopping around: Preference for department stores and e-commerce will hamper growth
2 About this Industry 2 Industry Definition
2 Main Activities
2 Similar Industries
3 Additional Resources
4 Industry at a Glance
5 Industry Performance 5 Executive Summary
5 Key External Drivers
7 Current Performance
9 Industry Outlook
11 Industry Life Cycle
13 Products & Markets 13 Supply Chain
13 Products & Services
15 Demand Determinants
16 Major Markets
18 International Trade
19 Business Locations
21 Competitive Landscape 21 Market Share Concentration
21 Key Success Factors
21 Cost Structure Benchmarks
23 Basis of Competition
24 Barriers to Entry
24 Industry Globalization
25 Major Companies
27 Operating Conditions 27 Capital Intensity
28 Technology & Systems
28 Revenue Volatility
29 Regulation & Policy
30 Industry Assistance
31 Key Statistics 31 Industry Data
31 Annual Change
31 Key Ratios
32 Industry Financial Ratios
33 Jargon & Glossary
www.ibisworld.com | 1-800-330-3772 | [email protected]
This report was provided to Trident University (2128027083) by IBISWorld on 22 January 2018 in accordance with their license agreement with IBISWorld
WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 2
Industry operators retail specialized lines of goods: kitchenware, art supplies, cigarettes and cigars, collectors’ items, fireworks and trophies. This industry also includes general
merchandise auction houses (except electronic auctions), but excludes mass merchandisers, department stores, grocery stores, warehouse clubs and supercenters.
The primary activities of this industry are
Retailing general merchandise
Retailing tobacco and tobacco products (e.g. cigarettes and cigars)
Retailing art supplies
Retailing collectors’ items (e.g. autographs, cards, coins and stamps)
Retailing fireworks
Retailing candles
Retailing religious goods (except books)
Retailing trophies
Retailing specialized occupational supplies
Retailing calendars
44831 Jewelry Stores in the US This industry retails a wide array of jewelry and time pieces.
45211 Department Stores in the US This industry retails a wide range of merchandise including apparel, cosmetics and appliances.
45322 Gift Shops & Card Stores in the US This industry retails a variety of goods, including greeting cards and gift items such as glassware.
45331 Used Goods Stores in the US This industry retails a broad range of merchandise, such as antiques, clothing and books.
45392 Art Dealers in the US This industry includes art galleries and art auction houses that retail a broad range of original and limited edition artwork.
45411a E-Commerce & Online Auctions in the US This industry retails a wide array of merchandise via the internet.
45411b Mail Order in the US This industry retails a wide array of products via mail order or catalogs.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are
Collectibles and monuments
Groceries and alcoholic beverages
Home goods
Pools, pool chemicals, pool supplies and accessories
Tobacco products and smokers’ accessories
Other
Provided to: Trident University (2128027083) | 22 January 2018
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About this Industry
For additional information on this industry
www.awardspersonalization.org Awards and Personalization Association
iamart.org iAMart
www.candles.org National Candle Association
www.nrf.com National Retail Federation
www.tma.org Tobacco Merchants Association
Additional Resources
IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com
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% c
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e
6
-4
-2
0
2
4
2210 12 14 16 18 20Year
Per capita disposable income
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% c
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e
6
-4
-2
0
2
4
2309 11 13 15 17 19 21Year
Revenue Employment
Revenue vs. employment growth
Products and services segmentation (2017)
31.2% Tobacco products and smokers' accessories
3.7% Groceries and
alcoholic beverages20.9% Collectibles and
monuments
20.5% Other
15.8% Pools, pool chemicals,
pool supplies and accessories
7.9% Home goods
SOURCE: WWW.IBISWORLD.COM
Key Statistics Snapshot
Industry at a Glance Small Specialty Retail Stores in 2017
Industry Structure Life Cycle Stage Decline Revenue Volatility Low
Capital Intensity Low
Industry Assistance Low
Concentration Level Low
Regulation Level Light
Technology Change Low
Barriers to Entry Low
Industry Globalization Low
Competition Level High
Revenue
$31.4bn Profit
$1.4bn Wages
$3.9bn Businesses
134,651
Annual Growth 17-22
-0.3% Annual Growth 12-17
-0.4%
Key External Drivers Per capita disposable income E-commerce sales Consumer Confidence Index Excise tax on tobacco products
Market Share There are no major players in this industry
p. 25
p. 5
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31
SOURCE: WWW.IBISWORLD.COM
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Key External Drivers E-commerce sales E-commerce retailers often offer substitute industry products at heavily discounted prices. In addition, specialty items, such as rare cigars and collectibles, are sometimes easier to find and purchase online. Therefore, as more consumers visit online retailers for their shopping needs, demand for brick-and-mortar establishments will fall. E-commerce sales are
expected to increase in 2017, posing a potential threat to the industry.
Per capita disposable income The majority of products supplied by this industry are discretionary items. A rise in household disposable income increases the propensity of consumers to purchase these goods, leading to growth in demand. Per capita disposable income is expected to
Executive Summary
Operators in the Small Specialty Retail Stores industry sell a diverse range of products, from premium cigars to grave markers. Due to its fragmented nature, the industry is not driven by product- specific trends but rather by broad macroeconomic variables. However, individual segments do respond to specific shifts in consumer preferences. Over the five years to 2017, rising income and employment have boosted demand throughout the retail sector. Despite this, small specialty stores are facing increasing competition from e-commerce
and department stores, limiting gains from increased consumer spending. Consequently, IBISWorld expects industry revenue to decrease at an annualized rate of 0.4% to $31.4 billion over the five years to 2017.
Revenue is expected to decline 0.3% in 2017, as e-commerce sales improve and consumer confidence wanes due to prolonged slow growth and uncertainty. Discount department stores and online retailers have increasingly taken retail market share from the industry with one-stop shopping and lower prices for similar products. External competition
has also driven underperforming retailers to exit the industry. However, while external competition has squeezed the industry’s market size, rising income levels and confidence overall during the period have limited revenue declines. Nonemployers and small retail stores that have low entry barriers dominate this industry, which promotes a fluidity for companies to enter and exit. Despite moderate revenue declines, the number of enterprises in this industry is marginally increasing. Small companies are able to start up with low capital input, and they are increasingly attempting to generate higher margins on more premium items.
Over five years to 2022, this industry is forecast to continue its marginal decline. IBISWorld forecasts growth in consumer spending, while consumer confidence is expected to decrease. Consequently, increasing levels of discretionary spending focus on price over specialty. Furthermore, the industry is expected to consolidate. Underperforming companies are expected to exit, while the few large companies are expected to acquire smaller ones. Additionally, tough external competition and popularity of online sales is expected to reduce the industry’s share of the overall retail sector. Industry revenue is forecast to decline at an annualized rate of 0.3% to $31.0 billion during the period.
Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Larger competitors have taken market share by providing one-stop shopping and lower prices
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Industry Performance
Key External Drivers continued
increase in 2017, representing a potential opportunity for the industry.
Consumer Confidence Index The Consumer Confidence Index measures consumers’ propensity to spend their discretionary income, rather than save. Because products sold by the industry tend to be discretionary in nature, industry revenue tends to positively correlate with the Index. The Consumer
Confidence Index is expected to decrease in 2017.
Excise tax on tobacco products Tobacco sales have historically comprised almost one-third of revenue for the Small Specialty Retail Stores industry. As the excise tax level on tobacco products increases, tobacco purchases fall, harming industry revenue. Excise taxes on tobacco are expected to increase in 2017.
%
15
3
6
9
12
2107 09 11 13 15 17 19Year
E-commerce sales
SOURCE: WWW.IBISWORLD.COM
% c
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-2
0
2
4
2210 12 14 16 18 20Year
Per capita disposable income
Provided to: Trident University (2128027083) | 22 January 2018
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Industry Performance
The Small Specialty Retail Stores industry retails specialized lines of goods, with operators offering a wide and distinct range of products, from cigarettes and pool supplies to funerary items. Therefore, broad changes in consumer confidence and spending patterns, rather than product-specific trends, drive overall industry performance. Several economic factors that tend to improve industry revenue have been positive during the period. Industry products tend to be highly discretionary, so the industry relies on consumer trends. Employment figures have been strong during the period and the economy has been on a prolonged streak of positive jobs growth. Recently, this has supported increased wages and household income levels, which has driven retail sales up. However, during the entire five-year period, revenue has declined in line with long-term trends. Over the five years to 2017, revenue is expected to decline at an annualized rate of 0.4% to $31.4 billion, a trend driven primarily by external retail competition.
Industry operators experience high external competition from online retailers, discount department stores, mass merchandisers and warehouse clubs. Most of the products sold by this industry can also be found at these establishments; moreover, the industry’s competitors offer the benefits of one-stop
shopping. The traditional advantage of specialty retailers was the scarcity of the products they sold, but online retailers have eroded this advantage. Additionally, since most of this industry’s competitors retail a variety of products within a single establishment, their fixed costs are spread over a much larger product base. Consequently, they are usually able to undercut prices charged by small specialty retail stores and have used their cost advantages to capture a greater share of the retail market. In 2017, revenue is expected to decline 0.3%, in line with the long-term trend. Revenue experienced growth in 2015 due to a drastic increase in consumer confidence, which was large enough to facilitate growth despite e-commerce encroachment.
Current Performance
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2309 11 13 15 17 19 21Year
Industry revenue
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External competition intensifies
Consumers have increasingly shifted their business from specialty stores to warehouse clubs and discount department stores. This external competition has siphoned revenue from industry operators by offering convenience and price advantages. In addition, large retailers can achieve cost savings through bulk purchasing and generally offer lower prices than industry operators. Despite growing consumer
confidence, individuals have remained conscious of price, and convenience is increasingly integral to retail success. This trend has cut into industry demand and has contributed to long-term revenue decline.
The primary threat facing the industry is the growing prevalence of online sales. Niche industry products, the cornerstone of small retail locations, can easily be found online. Moreover, consumers can shop online for the best prices, while also
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Industry Performance
External competition intensifies continued
gaining access to broader selections. The percentage of retail sales conducted through e-commerce is expected to increase an annualized 11.7% over the five years to 2017. However, despite the encroachment of external competition, industry operators are able to limit declines by offering a positive in-store experience. Stores focus on designed point-of-purchase displays, upscale locations and intimate product knowledge. As a result, stores provide value added above price, and in many instances, it has become increasingly fashionable to shop at specialty stores. Social concerns regarding small business owners and national efforts to “shop local” also act to support the industry. However, these tend to have short-lived effects, as the novelty tends to wear off in favor of lower prices, greater selection and increased convenience.
Tobacco products and accessories make up the largest product segment in the
industry, representing an estimated 31.2% of revenue. Tobacco products are discretionary purchases; however, many products tend to have an inelastic response to price changes and individual income. Therefore, industry sellers often rely on consistent sales from these products. Increased federal excise taxes to discourage smoking have had a negative effect on tobacco sales (see the Regulation and Policy section). Reports from the Centers for Disease Control and Prevention (CDC) found that the percentage of adult smokers has decreased slowly during the five-year period, decreasing from 18.0% in 2012 to an expected 15.8% in 2017. The decline is largely attributed to increased exposure to health warnings. However, use of other forms of tobacco products, such as e-cigarette and chewing tobacco, have increased. In total, tobacco usage is declining, adding to downward pressure on revenue beyond the structural issues facing the industry.
Stagnant margins Profit margins have stagnated at low shares of revenue during the period; however, as consumer confidence and spending increased, higher margin product lines have become more viable. Therefore, despite lower revenue and volume, some operators have succeeded in selling higher-margin items. However, this has been restricted by the prevalence of e-commerce, which provides a wider range of products at decreased prices. Profit is estimated to total 4.3% of revenue in 2017.
The primary factor supporting industry profitability has been the greater emphasis by operators to leverage their specialty nature. Companies are offering a value-added shopping experience, but increased wages and store front management costs hinder profitability. Additionally, employment is anticipated to increase at
an annualized rate of 1.2% to 232,382 employees over the five years to 2017. This is driven by large companies trying to expand and niche shops attempting to provide better service. Profit has been resistant to low demand based on two factors. First, the industry’s ease of entry and exit resulted in low earners leaving of the industry space when demand fell, and the number of industry establishments is expected to marginally increase to 139,503. This was largely due to the few large industry retailers, which have expanded operations in order to gain market share despite falling demand. Second, profit has held steady due to shifting consumer sentiments that
Profit has been resistant to low demand
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Industry Performance
Online competition Competition from external retailers, especially e-commerce and auction websites, will increase over the next five years. E-commerce, as a percentage of overall retail sales, is expected to increase to 14.5% by 2022. These online stores will continue to pose a major competitive threat to this industry. The largest operators will be able to continue growing within the retail space through their size and strong customer loyalty, but these large retailers are only a small portion of the industry. The smaller companies that comprise the bulk of the industry will experience pressure from online retailers. The primary competitive strength of small specialty stores will continue to be experience and locality. Operators are increasingly focusing on improving the in-store experience and relying on conspicuous consumption by higher income individuals.
Consumers are expected to increasingly shift to online shopping due to its relative convenience. This factor is
particularly pertinent for industry products such as collectible items and rare cigars, which are sometimes easier to find online than in traditional brick- and-mortar stores. As companies like Amazon continue to move forward with greater inventories and delivery improvements, industry operators increasingly lose value to consumers. While, for instance local specialty cigar shops once provided local convenience, they will increasingly compete against online warehouses with greater selection, bulk pricing and fast delivery. Therefore, the space for industry companies to operate is expected to shrink, and only those that can effectively provide premium retail service will survive.
Increasing competition is expected to force this industry to consolidate over the next five years, with many unprofitable players expected to exit the industry. Internal competition will decrease somewhat as a result, which will encourage profitable operators to strengthen their
Industry Outlook
IBISWorld forecasts that the Small Specialty Retail Stores industry will continue to decline as external competition intensifies. Revenue is forecast to continue a downward trend as consumers trend toward other retail sources for specialty goods. Beyond the pressure generated from external competition, the industry will experience market conditions unfavorable to niche and specialty items. Over the five years to 2022, revenue is expected to decrease at an annualized 0.3% to $31.0 billion.
During the outlook period, consumer spending is forecast to continue steady growth, but consumer confidence will decline. Financial uncertainty and sluggish growth will drag on consumer’s propensity to spend on discretionary items.
Smaller companies will experience pressure from online retailers
have benefited certain segments of the industry. For instance, demand for candles has increased significantly, and specialty brands in particular are selling at higher prices while maintaining low
production costs. As a result, operators are situating themselves to provide a retail experience that merits higher prices, rather than trying to match e-commerce’s price advantages.
Stagnant margins continued
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Industry Performance
Online competition continued
position. Overall, the number of industry enterprises is expected to decrease at an annualized rate of 0.2% to 133,283 companies over the five years to 2022. Employment is anticipated to decrease at a similar pace, exhibiting an annualized
decline of 0.3% to 229,458 individuals during the period. As growth in demand for specialty products slows and customers continue to use external retailers, small operators that cannot generate sufficient operating margins will exit the industry.
Social and structural change
Over the next five years, attitudes adverse to smoking will continue to impede demand for tobacco products, the industry’s largest product segment. According to the latest data released by the Centers for Disease Control and Prevention, the percentage of adult smokers in the United States is expected to fall from 15.8% in 2017 to 14.4% in 2022. Greater restrictions on where people can smoke, such as new e-cigarette bans in restaurants and public places, will further discourage smoking and decrease tobacco demand. In addition, excise tax increases during the period will likely curb demand for tobacco, with tobacco retailers anticipated to experience an increasingly regulated market. Food and Drug Administration regulations now cover a greater range of tobacco products. As a result, retailers of loose tobacco, premium cigars, and electronic tobacco products will encounter the regulatory strain that traditional cigarette retailers have traditionally experienced. These products are typically strong revenue producers for industry companies, as they provide an opportunity for elevated margins through markups on premium items. As overall demand for tobacco products recedes, industry operators
will increasingly rely on higher markups, but increased regulation will hinder gains to profit.
Although the industry is in decline, a market remains for effective stores to operate in the industry. Consumer demand for specialty retail stores will continue to be subject to shifting preferences. However, individuals are expected to continue paying premiums on retail items based on the perceived value added by industry stores. Small specialty retailers are forecast to become increasingly located in higher income areas, whereas previously a large portion were in rural or suburban areas without large department stores. Industry viability will become increasingly reliant on servicing particular local needs and foregoing competition with large retailers. Therefore, despite the gradual decline of the industry overall, there is room for operators that can effectively tap into local markets.
Excise taxes and greater restrictions on smoking will likely curb some demand for tobacco
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Industry Performance The industry’s relative contribution to US GDP is expected to fall over the ten years to 2022
The industry’s size is expected to decline over the next five years
The industry is losing market share to discount retailers and online outlets
Life Cycle Stage
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20
15
10
5
0
-5
-10
% G
ro w
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% Growth in number of establishments
-10 -5 0 5 10 15 20
Decline Shrinking economic importance
Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets
Maturity Company consolidation; level of economic importance stable
Quantity Growth Many new companies; minor growth in economic importance; substantial technology change
Key Features of a Decline Industry
Revenue grows slower than economy Falling company numbers; large fi rms dominate Little technology & process change Declining per capita consumption of goods Stable & clearly segmented products & brands
Jewelry Stores Janitorial Services
Textile Mills
Department Stores
Fine Arts Schools
Small Specialty Retail Stores
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Industry Performance
Industry Life Cycle The Small Specialty Retail Stores industry is in the decline stage of its life cycle. Over the 10 years to 2022, industry value added, which measures the industry’s contribution to GDP, is expected to increase at an annualized rate of 0.1%. During the same period, the US economy is projected to grow at an annualized rate of 2.1%. Falling establishment numbers and contracting buyer groups are also indicative of a declining industry. The industry has exhibited little technological change that would affect growth and businesses are lagging behind trends in the overall retail sector.
Tough competition is expected to constrain industry participation. Over the
10 years to 2022, the number of enterprises is estimated to stagnate, mainly because under-performing operators will exit the industry due to plummeting profitability and poor demand for their specialty items. The long-term trend of a decline in smoking will have a negative effect on sales of tobacco products, the industry’s largest product segment. Warehouse clubs, discount department stores and online retailers have all effectively eroded the industry’s market share by providing the convenience of one-stop shopping and lower prices. This trend is expected to continue over the next five years, further contributing to the industry’s decline.
This industry is Declining
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Products & Services
Tobacco products and smokers’ accessories Tobacco products and smokers’ accessories represent the industry’s largest product segment, accounting for
an estimated 31.2% of revenue in 2017. These products include cigars, cigarettes, chewing tobacco and snuff, as well as accessories such as lighters, pipes, rolling papers, vaporizers, and hookahs. Social
Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES
56172 Janitorial Services in the US This industry purchases various janitorial equipment from specialty retail stores.
61161 Fine Arts Schools in the US This industry purchases art materials and supplies from specialty retail stores.
62161 Home Care Providers in the US This industry purchases nursing scrubs from specialty retail stores.
81311 Religious Organizations in the US This industry purchases goods from specialty retail stores.
99 Consumers in the US Consumers purchase various goods from specialty retail stores.
KEY SELLING INDUSTRIES
31310 Textile Mills in the US This industry supplies textile products such as flags.
33994 Art & Office Supply Manufacturing in the US This industry supplies art materials.
42392 Toy & Craft Supplies Wholesaling in the US This industry supplies fireworks, as well as traditional toys and craft supplies.
42494 Cigarette & Tobacco Products Wholesaling in the US This industry supplies tobacco, tobacco products and smokers’ accessories.
51119 Greeting Cards & Other Publishing in the US This industry supplies greeting cards and calendars.
Supply Chain
Products and services segmentation (2017)
Total $31.4bn
31.2% Tobacco products and smokers' accessories
3.7% Groceries and
alcoholic beverages 20.9%
Collectibles and monuments
20.5% Other
15.8% Pools, pool chemicals,
pool supplies and accessories
7.9% Home goods
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
Products & Services continued
and governmental efforts, including national anti-smoking campaigns and state excise taxes, have contributed to a reduction in the number of smokers overthe five years to 2017. According to the latest data released by the Centers for Disease Control and Prevention, the percentage of adult smokers in the United States decreased from 18.0% in 2012 to an expected 15.8% in 2017. However, other forms of tobacco use are growing during the period. E-cigarette use was estimated at 3.7% of adults in 2014 (latest available data), and increasing. Additionally, the use of smokeless tobacco products, like chewing tobacco is increasing from previous lows, with adult use at 3.4% in 2014. The number of smokers is decreasing at a slower rate than in previous decades, which bodes well for industry participants. Despite campaigns and taxes hurting cigarette sales, other forms of use are maintaining product revenue. Although, competition from online retailers and non-specialty stores place significant pressure on tobacco stores for sales. Over the five years to 2022, tobacco revenue for small specialty retail stores is forecast to slowly decline, as societal and external business pressures erode sales.
Collectibles and monuments In 2017, small specialty retail shops are expected to generate 18.1% of industry revenue through sales of collectibles and monument type items. Since collectible items are considered unessential, they were particularly vulnerable to the recession’s lingering effects. However, as consumer confidence increases during the period, individuals are more like to make discretionary expenditures on collectible items. As a result, this segment’s share of revenue is expected to increase over the five years to 2017. Specifically, sales of collectible items are expected to account for 12.7% of industry revenue, as prices increase. Additionally,
trophies are included in this segment, and consumer preferences during the period have increased demand for trophies and plaques. A steady source of revenue in this segment is derived from monuments, which include grave markers, caskets and urns. As the median age of the population increases, as is the case over the current period, the demand for these items necessarily increases. As a result, an aging population is expected to bolster sales from stores specializing in funerary products.
Pools, pool chemicals, pool supplies and accessories Small specialty stores specializing in pools and pool supplies are expected to generate 15.8% of industry revenue, making this product segment one of the industry’s largest. Over the past five years, an improving economy has buoyed replacement and maintenance demand for pools, keeping this product segment’s overall share of revenue strong. Consumer confidence and rising income levels drive the use of these products, as pools are typically discretionary. However, the segment does supply products to more stable markets like public and private pools at large athletic facilities. Over the next five years, this product line may be limited by falling consumer confidence. However, warmer average temperatures have the possibility of supporting pool sales to a larger range of the country as more regions have longer pool seasons.
Home goods Home goods are anticipated to account for 7.9% of 2017 industry revenue. Specialty stores focusing on home goods sell kitchenware, cleaning supplies, various toiletries, and home improvement supplies. These products are typically higher quality or niche type products that differentiate from what consumers purchase from big box or
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Products & Markets
Demand Determinants
This industry incorporates a range of operators that retail a wide variety of goods, all of which are affected by unique trends of their own, along with the broad economic trends that affect discretionary purchases in general. Most industry products are considered discretionary or
nonessential, so the level of disposable income enjoyed by consumers generally determines spending at small specialty retail stores. Furthermore, higher discretionary income allows consumers to freely spend on higher-quality goods, which are often retailed by this industry.
Products & Services continued
department stores. Improving consumer sentiment is helping sales of these products during the period, as individuals are more likely to spend on specialty goods for the home. Additionally, improving home construction and remodeling markets during the period should lead to consumers buying an increasing variety of home goods. However, this segment experiences significant pressure from e-commerce, as consumers are increasingly likely to shop online for various niche products. The segment is reliant on shoppers deriving value from the in-store experience.
Groceries and alcoholic beverages An estimated 3.7% of industry revenue is accounted for by sales of groceries and alcohol in 2017. Consumers tend to do shopping at larger establishments for groceries, however, purchases are typically made in small stores to avoid long lines or to find specialty products. As with other specialty goods, this segment is reliant on the overall economy, when consumers feel confident, they are more likely to forego bulk discounts from large grocers that rely on volume and purchase specialty products. Changing consumer preferences have also aided this segment, as US consumers are increasingly interested in organic or specialty grocery items.
Art materials and supplies Art materials and supplies, which include paint, paintbrushes, knives, canvases,
cutting mats and other accessories, are expected to account for 2.8% of industry sales in 2017. This segment’s share of industry revenue is expected to decline during the five-year period due to tough competition from online retailers and department stores. Nonetheless, the industry has a dedicated core consumer base of product users who continue to provide patronage to industry establishments. Since these artists and students require art materials and supplies as part of their jobs and studies, fluctuations in disposable income and consumer confidence are less influential in determining this segment’s performance.
Other The industry includes a large number of small retailers that sell a wide variety of products; thus, industry revenue generated by other products is quite large. In 2017, 20.5% of total revenue is expected to come from retailers of calendars, candles, emergency preparedness equipment, flags and banners, artificial flowers, fireworks and all other products not included in other segments. One shared characteristic of the products in this segment is their discretionary quality, directly tying the performance of this segment to changes in consumer spending. Consumer spending is increasing during the period, which aids sales of these products. Although, stores that specialize in these items are typically small, making it difficult to get exposure to consumers when large e-commerce sites are so readily available.
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Products & Markets
Major Markets Based on US Census Bureau data and IBISWorld research, businesses are estimated to account for 18.1% of the industry’s total market in 2017. These buyers purchase occupational supplies, such as nurse scrubs and janitorial equipment, from industry operators for business use. The remaining 81.9% of the market represents households and individual buyers, who purchase products for personal use. As consumer confidence and disposable income improved,
consumers are expected to have increased their consumption across the retail sector.
Consumers aged 24 and younger Consumers 24 and younger are expected to make up 3.4% of total sales. A majority of this segment’s consumers are teenagers and young adults who have limited disposable income; therefore, this segment’s share of revenue is expected to remain flat over the five years to 2017. Home goods and funerary monuments
Demand Determinants continued
Discretionary spending has been on the rise during the period. The US is experiencing a prolonged period of slow growth. As a result, consumers are increasingly willing to make expenditures on specialty goods. However, as interest rates increase and consumers become weary of the slow growth, this is expected to drag on discretionary spending patterns.
Consumer confidence also drives industry demand. Movements in consumer confidence take into account household finances, business conditions, unemployment, inflation, interest rates, income and government economic policy. When consumer perceptions of the economy are positive, consumers spend more freely on discretionary items, including industry products. Perceptions of the economy have since been improving, consumers have remained cautious with their spending in some respects. Since 2012, consumer confidence has experienced growth in line with declining unemployment and the improving economy. However, is expected to decline in 2017 as consumers feel the strain of political uncertainty and the persistence of below average GDP growth.
Social perception and trends have a significant impact on demand for tobacco products, the industry’s largest product segment. Increasing public awareness about the health dangers of smoking
fueled a decline in the number of smokers during the past few decades. According to data from the Centers for Disease Control and Prevention, the percentage of adult smokers declined from 42.4% in 1965 to 25.5% in 1990. In 2017, this rate is expected to fall further to 15.8%. This decline has negatively affected demand for all tobacco products. More recently, the percentage of smokers has continued to decrease, but at a slower rate, resulting in relatively steady but still declining demand for tobacco. Shifting consumer sentiments about other products also drive demand. For many operators, they are able to maintain competitiveness by providing a retail environment that caters to consumer preferences like luxury imports or organic goods.
External competition from department stores, warehouse clubs and e-commerce websites unfavorably affects industry demand. Comparable items offered at lower prices from external competitors shift consumer spending away from industry operators. Over the five years to 2017, competition has heightened, hurting industry revenue. The breadth of goods available online forces industry operators to compete on experience. Store layout, design, and location help companies provide a shopping experience that can help limit the effects of price competition with large retailers.
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 17
Products & Markets
Major Markets continued
are not typically demanded by consumers in this age range. This group will only spend money on necessary items, such as art supplies for school, or inexpensive merchandise, such as souvenirs or novelties. Additionally, this segment includes a significant amount on non- smokers. Although under age tobacco use, especially of non-cigarette alternatives exists, are not counted as purchases.
Consumers aged 25 to 44 This age range is anticipated to account for 24.1% of demand for industry products. Consumers in this age group are typically employed and have steady income streams, allowing them to spend freely on industry items. In addition, this group includes cigarette smokers and other tobacco users, who consistently purchase products despite price changes. As disposable income continues to improve over the five years to 2022, this segment’s share of revenue is expected to increase.
Consumers aged 45 to 64 Individuals between the ages of 45 to 64 are estimated to account for 29.1% of the market in 2017. Since consumers in this
group generally have sufficient disposable income, they are able to spend on both inexpensive items and more costly items, such as hard-to-find collectibles and antiques. As consumers in this segment decrease expenses on children that have moved out of the home, they have greater time and income to purchase goods from this industry’s operators, thereby increasing their share of revenue during the five-year period. Although, individuals in this range smoke at a lower rate than the 25 to 44 age demographics.
Consumers aged 65 and older In 2017, consumers aged 65 and older are expected to generate 25.3% of industry revenue. Although these consumers only smoke at a rate of 8.5% according to the CDC, they are more likely to frequent small shops for various goods. This segment is limited to an extent by diminished income, but retirement age consumers have more time to spend at small shops. Additionally, this age range is less likely to make use of e-commerce sites, preferring brick and motor locations. Moreover, this is age range has grown in number as the baby boomer generation enters this cohort.
Major market segmentation (2017)
Total $31.4bn
29.1% Consumers aged
45 to 64
25.3% Consumers aged
65 and older
24.1% Consumers aged
25 to 44
18.1% Businesses
3.4% Consumers aged 24 and younger
SOURCE: WWW.IBISWORLD.COM
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 18
Products & Markets
International Trade Because merchandise trade figures are classified to the relevant upstream production industries, small specialty retail stores do not engage in international trade. However, the industry retails a wide range of products that are sourced to foreign
suppliers, including cigars and cigarettes (Cigarette and Tobacco Manufacturing industry, IBISWorld report 31222), art supplies (Art and Office Supply Manufacturing industry, IBISWorld report 33994) and collectible items.
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 19
Products & Markets
Business Locations 2017
MO 2.2
West
West
West
Rocky Mountains Plains
Southwest
Southeast
New England
Great Lakes
VT 0.2
MA 1.9
RI 0.3
NJ 2.0
DE 0.5
NH 0.7
CT 1.0
MD 1.2
DC 0.0
1
5
3
7
2
6
4
8 9
Additional States (as marked on map)
AZ 2.4
CA 10.1
NV 1.3
OR 1.6
WA 2.6
MT 0.4
NE 0.6
MN 1.9
IA 0.9
OH 3.8
VA 2.4
FL 8.6
KS 0.9
CO 2.1
UT 0.9
ID 0.6
TX 6.7
OK 1.8
NC 2.7
AK 0.2
WY 0.2
TN 2.5
KY 1.8
GA 2.2
IL 3.7
ME 0.6
ND 0.2
WI 1.5 MI
4.2 PA 4.6
WV 0.7
SD 0.4
NM 0.8
AR 1.2
MS 1.0
AL 1.2
SC 1.5
LA 1.5
HI 0.3
IN 2.5
NY 5.0 5
6 7
8
3 21
4
9
SOURCE: WWW.IBISWORLD.COM
Mid- Atlantic
Establishments (%)
Less than 3% 3% to less than 10% 10% to less than 20% 20% or more
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Products & Markets
Business Locations Like most retail industries in the United States, the geographical spread of the Small Specialty Retail Stores industry’s establishments closely reflects the distribution of the nation’s population. Generally, the greater the number of residents in a region, the stronger the demand for various specialty store products. Because most industry players are small-scale operations, they cater to their immediate local markets. In 2017, IBISWorld expects that industry establishments will be concentrated in the Southeast, West, Great Lakes, and Mid-Atlantic, which have high shares of the US population.
Based on US Census Bureau data and IBISWorld estimates, the Southeast is expected to account for the highest share of industry establishments 27.3% of industry establishments in 2017, and 25.6% of the population. Within the southeastern region, Florida, which accounts for 6.3% of the US population, is expected to contain 8.6% of total industry establishments.
Following the Southeast, the West is expected to account for the second- highest share of industry establishments, with 16.1% in 2017. Population projections indicate that this region will also account for the second-largest share of the nation’s population with 17.2%. California, which accounts for 12.2% of the total US population, is expected to account for the highest number of industry establishments in any state, with 10.1% of operators.
The Great Lakes region is expected to account for 15.7% of industry establishments. This region is home to 14.6% of the population, but is also home to a large amount of small businesses focused on local specialty items.
The Mid-Atlantic region is expected to account for 13.3% of establishments in
2017. This region accounts for 15.3% of the overall US population. New York, the main hub of the Mid-Atlantic region, is expected to account for 5.0% of industry establishments in 2017. Additionally, Pennsylvania is estimated to account for 4.6% of operators, driven by a significant level of small specialty retailers in rural regions.
The Southwest region is expected to contain 11.7% of establishments in 2017, with an estimated 12.5% of the population. Additionally, the Plains, New England, and Rocky Mountain regions are anticipated to account for 7.1%, 4.7% and 4.2% of establishments, respectively. The lower proportion in these regions is mostly driven by population, and not consumer sentiments.
While population concentration is important, a large number of qualitative factors also affect the geographic spread of establishments. Local trends, tourism appeal, and various word of mouth advertising can prop up industry participants in region.
%
30
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20
So ut
hw es
t
W es
t
G re
at L
ak es
M id
-A tl
an ti
c
N ew
E ng
la nd
Pl ai
ns
R oc
ky M
ou nt
ai ns
So ut
he as
t
Establishments Population
Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 21
Cost Structure Benchmarks
Profit Profit is measured as earnings before interest and taxes. Profit margins vary among specialty retailers, since these stores sell a wide range of products that have different purchase costs and selling prices. Over the five years to 2017, profit margins have been stagnant. Competition from mass
merchandisers, discount retailers and e-commerce websites hampered average industry profitability for several years. By offering comparable industry products at lower prices, large retailers have attracted consumers that have traditionally shopped at small specialty shops. However, most industry operators are able to focus on
Key Success Factors Effective product promotion Effective advertising and marketing initiatives will generate extra revenue for industry operators.
Ability to control stock on hand Operators should ensure that sufficient stock levels are maintained at all times by reordering popular items and dispensing of low-selling merchandise.
Access to niche markets Having access to niche markets will assist in shielding operators from external competition, particularly
from warehouse clubs and large- format retailers.
Experienced workforce Successful operators employ workers who are friendly and knowledgeable about specialized products offered, which differentiates the shopping experience from that of larger stores.
Attractive product presentation Industry stores should have effective layout and design, as well as good shelf management, with products clearly presented to grab customers’ attention.
Market Share Concentration
The Small Specialty Retail Stores industry exhibits low market share concentration. IBISWorld estimates that the four largest players in the industry will account for an estimated 11.6% of revenue in 2017, with no retailer accounting for more than 2.5%. The industry is highly fragmented, characterized by a large number of small players that are privately owned and operated. In 2017, an estimated 70.8% of enterprises have fewer than five employees, while only 2.3% of enterprises are estimated to employ more than 20 workers.
In recent years, industry concentration has been on the rise primarily due to increased external competition. External competitors, such as mass merchandisers, warehouse clubs, department stores and online
retailers have increasingly provided convenient shopping experiences and low prices to consumers who traditionally shopped at specialty stores. As a result, many industry operators have lost business to these competitors. This trend has caused underperforming operators to consolidate or exit the industry completely. As a result, the few larger operators in the industry are gaining market share. Large operators are able to benefit from economies of scale, which allow them to remain viable in competition with other retail formats. Moreover, large specialty retailers like Yankee Candle and Williams Sonoma are part of a larger corporate structure and have the capital necessary to expand their footprint despite waning demand for the industry.
Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Level Concentration in this industry is Low
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 22
Competitive Landscape
Cost Structure Benchmarks continued
providing added value though shopping experience. Although, this is not available to all specialty retailers. The operators that cannot efficiently provide a value-added retail experience, must lower prices while maintaining a brick and mortar location, thereby limiting profitability. IBISWorld estimates that industry profit has increased slightly to 4.1% of revenue in 2017.
Purchases Purchase costs are expected to remain the largest expense for the industry, accounting for an expected 48.8% of industry revenue. This is typical for the retail sector because stores must keep a large volume of inventory on hand to meet consumer demand. Inventory items are purchased from a large number of wholesalers, generally without long-term contracts. Over the five years to 2017, purchase costs have slightly diminished, with strong competition and increased penetration of
low-cost imports reducing the prices of inventory goods.
Wages Employee compensation, including payroll and benefits, accounts for an expected 12.5% of industry revenue and is the second largest expense for the industry. Most industry players are small, and they heavily rely on employees for daily operations. These activities include stocking shelves, cashiering, organizing store displays and other customer service tasks. Customer service is especially important to this industry as it retails specialized items that often require employees to answer product- specific questions. However, this industry’s wage costs are not especially high because of its many owner-operator stores. Over the five years to 2017, wage expenses have increased as a share of revenue from 11.0% in 2012. This increase is generally attributable to recent increases in
Sector vs. Industry Costs
n Profi t n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other
Average Costs of all Industries in sector (2017)
Industry Costs (2017)
0
20
40
60
Pe rc
en ta
ge o
f re
ve nu
e
80
100
SOURCE: WWW.IBISWORLD.COM
3.5 4.3
26.1
5.6 1.70.9
48.9
12.5
10.4 4.3 1.6
1.0
69.8
9.3
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Competitive Landscape
Basis of Competition Internal competition Because of the wide range of industry products, only a moderate level of competition exists among industry operators. Most industry retailers cannot compete against one another because they retail entirely different merchandise. Tobacco shops and candle stores may both retail lighters and matches, but they are not natural competitors. Therefore, these operators do not compete directly with one another.
However, a high level of competition does exist between operators that sell the same products. Because most products offered by the industry are discretionary and specialized, consumers tend to shop around in search of bargains and unique items. Therefore, operators are subject to price competition. In addition, customer service is an important basis of competition among operators, since industry products often require specialized and specific knowledge.
Consumers are more likely to shop at stores where they are confident that they will receive informative advice from employees. Beyond customer service, stores compete on customer experience. Consumers are more likely to become return customers after an enjoyable experience, and the stores are more likely to gain vital word of mouth exposure.
External competition This industry encounters a high level of competition from operators in other industries, such as warehouse clubs, discount department stores and online retailers. These competitors are able to use economies of scale to maximize cost savings by purchasing large volumes of inventory at once, allowing them to offer heavily discounted products to consumers. As a result, specialty stores have experienced increased pressure to lower their product markups and absorb the associated losses in an
Cost Structure Benchmarks continued
employment from larger operators, as they try to grow their market share.
Rent and utilities Rent costs for this industry are expected to account for a moderate portion of total industry revenue in 2017. This cost largely covers leases paid on store premises along with any additional expenditure for the use of rented equipment or machinery. The cost of utilities for commercial end users has decreased slightly during the period according to the Energy Information Administration. This change, albeit small, acts to alleviate some cost pressure on small retailers. Rent and utilities are estimated at 5.6% of industry revenue in 2017.
Other Operators incur a variety of other costs, such as marketing and
advertising expenses, depreciation, general administrative costs and insurance costs. Depreciation is very low, as most operators rent their establishments thereby reducing their depreciable asset size. Within these costs, marketing and advertising have become increasingly important as external competition has grown over the past five years. Store owners have actively engaged in advertising through in-store promotions, mail and newspaper inserts, direct mailing and e-mail programs to set themselves apart from department stores and warehouse clubs, and to increase store traffic. IBISWorld estimates that advertising expenditure alone accounts for 1.7% of revenue in 2017. Additionally, all other costs are estimated to account for 26.1% of total revenue.
Level & Trend Competition in this industry is High and the trend is Steady
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 24
Competitive Landscape
Industry Globalization
The Small Specialty Retail Stores industry has a low level of globalization. The majority of industry operators are small to midsize businesses, and they lack the resources to operate globally. As a result, most revenue from these stores is
generated from domestic operations on a local or regional basis. Similarly, trade is not a factor for this industry. International trade of specialty retail store merchandise is accounted for in their respective upstream production industries.
Barriers to Entry The Small Specialty Retail Stores industry exhibits minimal barriers to entry, with low establishment costs and no significant licensing requirements. However, industry competition and market awareness can pose a barrier to potential new entrants. Most industry operators are small to midsize establishments that cater to a local or regional community. Therefore, there is little need to invest heavily in technology, such as computerized inventory controls or point-of-sale systems.
Most small specialty retailers do not have prohibitive license requirements, except regarding sales of tobacco products and alcohol. Even so, tobacco retail licenses are relatively easy to obtain through state governments. In New York, where tobacco is highly regulated, two-year retail licenses only cost $85 or $110 depending on application dates. Despite low profit margins, because there are few barriers to entry the industry is estimated to have nearly 134,651 enterprises in 2017.
High competition, while not a formal barrier to entry, may prevent potential
new businesses from entering the industry. With external competitors, such as department stores and warehouse clubs, increasingly siphoning sales from small specialty stores, industry margins have been constrained. New entrants without an established presence in the local community may find it difficult to remain profitable. Therefore, the main deterrent to entry is profit anticipation. Renting a store front may require relatively low investment, but low expectations of profit margin on limited revenue can expose new owner- operator entrants to significant risk.
Basis of Competition continued
attempt to match the lower prices of mass merchandisers.
However, small specialty retail stores can differentiate themselves through quality and range of products offered because external competitors typically
only carry low to moderate quality goods in a limited range. Therefore, industry operators can appeal to consumers by featuring a wide selection of high quality products with a tailored customer experience in mind.
Barriers to Entry checklist
Competition High Concentration Low Life Cycle Stage Decline Capital Intensity Low Technology Change Low Regulation & Policy Light Industry Assistance Low
SOURCE: WWW.IBISWORLD.COM
Level & Trend Barriers to Entry in this industry are Low and Steady
Level & Trend Globalization in this industry is Low and the trend is Steady
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 25
Other Companies The Small Specialty Retail Stores industry is characterized by many small operators that retail a wide range of products, with no single player capturing more than 5.0% of total revenue. Owner- operators (stores without any hired employees) account for 83.3% of enterprises in 2017 and dominate the industry because they can successfully supply local or regional demand. Although tobacco and tobacco products account for more than one-third of industry revenue, there are no tobacco- focused specialty stores that contribute a significant portion to industry revenue.
Leslie’s Poolmart Inc. Estimated market share: 2.6% Leslie’s Poolmart Inc., more commonly known as Leslie’s Swimming Pool Supplies, began in the backyard shed of a North Hollywood, CA, home in 1963. Today, the company operates 893 retail stores in 35 states, mostly in locations with substantial fair-weather seasons. Leslie’s sells pool supplies such as chemicals, cleaning devices, equipment, parts and recreation and safety products, supplemented in part by backyard and patio furniture and decor. Similar to many small specialty retailers, Leslie’s offers customer service expertise that includes on-site professional equipment installation and repair, in addition to free in-store water analysis and pool school seminars. Leslie’s also offers a best-price guarantee to stem competition. The company is headquartered in Phoenix and employs more than 3,500 people during the peak summer season.
Private-equity firms CVC Capital Partners and Leonard Green & Partners own Leslie’s. IBISWorld expects that Leslie’s will generate revenue of $811.9 million in 2017, continuing to grow organically and through acquisitions. For example, in 2013, Leslie’s acquired the 24 Warehouse Pool Supply stores in Houston and has plans for continued
expansion. However, revenue growth is limited by competition from large stores and e-commerce. Leslie’s is able to compete with brand recognition and value-added services, but larger retailers put significant price pressure on what tend to be highly commoditized products.
The Container Store Group Inc. Estimated market share: 2.4% The Container Store Group Inc., established in 1978 in Dallas, is a specialty retail chain that sells storage supplies for the home and office. Its 79 stores sell more than 10,000 organizational and storage products, including storage bins, laundry hampers, trash cans and travel luggage. In 2007, Leonard Green & Partners, a private equity firm that also holds a majority stake in large retailers such as David’s Bridal and Petco, took ownership of The Container Store by purchasing the majority of the company’s stocks. The company went public in November of 2013.
The Container Store has dominated the niche storage product market, with sales growing an expected annualized rate of 5.9% over the five years to 2017. More than 90.0% of the company’s revenue is specific to the retail portion of sales, specialized in container products. The company has gained wide popularity by offering quality products and focusing on customer service. In addition, The Container Store has gained a favorable brand image by turning its efforts to recruiting and retaining a high-quality workforce. In fact, the company has made Fortune magazine’s list of “100 Best Companies to Work for in America” over the 17 consecutive years to 2016, most recently placing at #16. IBISWorld estimates that The Container Store will generate $743.4 million in sales in 2017. Despite slumping industry revenue, the company has taken advantage of its relative size and favorable customer relationships to improve sales figures.
Major Companies There are no Major Players in this industry | Other Companies
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Major Companies
Other Companies continued
The Yankee Candle Company Inc. Estimated market share: 1.8% The Yankee Candle Company Inc., established in 1969 and based in South Deerfield, MA, is the largest specialty- brand candle company in the United States. The company designs, manufactures, distributes and retails its own premium candles under the Yankee Candle brand. In 2013, consumer products company Jarden Corp. acquired the company for $1.8 billion. In December 2015, Jarden Corp. was acquired by Newell Brands for $13.2 billion in cash and stock.
While Yankee Candle has operations that span the entire supply chain, only the retail operations of its 568 stores are relevant to this industry. The company’s retail-segment revenue is expected to reach $556.2 million in 2017. A large increase in competition from department stores, which frequently offer similar products at lower prices, contributed to sales declines. Nonetheless, the company has been actively fighting against declining in-store retail demand through a variety of measures, such as location expansion. The company also entered into a partnership with 1-800-Flowers to boost additional sales and actively introduced new products (e.g. QuickScent) to expand its customer base. The retail segment is exhibiting
estimated annualized growth of 4.4%, as an expanding operational scale helps boost revenue in an increasingly competitive market.
Williams-Sonoma Estimated market share: 1.6% Williams-Sonoma is the flagship brand of parent company Williams-Sonoma Inc., which includes Pottery Barn, Pottery Barn Kids, West Elm, PB Teen, Rejuvenation and Mark and Graham. Established in 1956 in Sonoma, CA, the company has grown into a large multi- brand corporation, with total company revenue reaching $5.1 billion in 2016. Since its founding, the Williams-Sonoma line of retail stores has focused on providing specialty home goods to consumers seeking products unavailable at large outlets. There are 239 Williams- Sonoma retail locations in the United States, and they employ an estimated 12,800 people during peak seasons.
In-store retail sales of the specific Williams-Sonoma locations are estimated to have declined during the period at an annualized rate of 0.8% to $506.3 million. Although the overall company has grown, the retail portion of Williams-Sonoma has not fared well due to competition from large e-commerce sites. Online retailers like Wayfair have put pressure on the company’s revenue streams.
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 27
Capital Intensity The Small Specialty Retail Stores industry has a low level of capital intensity. IBISWorld estimates that for every dollar spent on wages, industry operators will spend $0.08 in capital investment. Capital investment is mainly in fixtures and fittings, cash registers, point-of-sale systems and storage units. Additionally, some niche retailers, such as swimming pool supplies stores, provide in-store repairs that require the purchase of specialized equipment. Over the five years to 2017, capital intensity increased; in 2012, for every dollar spent on wages, industry operators spent an estimated $0.07 in capital investment. Capital investment for larger operators increases in accordance with larger stores and greater inventory storage and
tracking necessary to accommodate volume. However, smaller operators that make up the overwhelming majority of
Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Tools of the Trade: Growth Strategies for Success
SOURCE: WWW.IBISWORLD.COM
La bo
r In
te ns
iv e
Capital Intensive
Change in Share of the Economy
New Age Economy
Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.
Traditional Service Economy
Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.
Old Economy
Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.
Investment Economy
Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Jewelry Stores
Janitorial Services
Textile Mills
Department Stores Fine Arts Schools
Small Specialty Retail Stores
Capital intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COM
Dotted line shows a high level of capital intensity
Capital units per labor unit
Small Specialty Retail Stores
Retail TradeEconomy
Level The level of capital intensity is Low
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Operating Conditions
Revenue Volatility Due to the discretionary nature of products sold in this industry, revenue is influenced by variations in the level of real disposable income. A rise in per capita disposable income increases the propensity of consumers to purchase industry products, causing sales to grow. Over the five years to 2017, industry revenue has been driven down intense competition from other retail outlets.
However, improvement in consumer confidence and spending are aiding revenue. Overall, the industry has exhibited low revenue volatility during the five-year period, as the economy demonstrates prolonged slow growth. While revenue has declines, these declines have been fairly low and stable during the period as consumers increase spending but are flocking to other retail markets.
Technology & Systems Technology that specifically pertains to the Small Specialty Retail Stores industry has changed little during the current period. However, some operators in this industry have benefited from technological advances that affect the general retail sector, including computer scanning cash registers and electronic data interchange. The implementation of these advances has enabled industry retailers to control and record merchandising, distribution, sales and stock markdowns via point of sale systems. Additionally, radio frequency identification (RFID) provides real-time information on inventory, helps reduce shrinkage problems and improves efficiency. These products have been widely used for more than a decade. However, the declining costs of RFID systems allow smaller industry operators to implement this technology in their
business. Additionally, the growing simplicity and effectiveness of credit and debit card readers from companies like Square have allowed small retailers to move past cash based operations. This adds to convenience in an industry struggling to give shoppers a reason not to bypass them for larger retailers.
Advances in technology have also altered the way consumers shop for industry goods. In recent years, e-commerce, has expanded significantly, and many operators recognize that they need to offer some form of online presence to remain competitive. As a result, the industry’s larger players have established their own websites to sell their products. However, these sales are not included as part of industry revenue. So, as operators attempt to increase their online presence this tends to hurt industry-relevant revenue.
Capital Intensity continued
companies, have very low capital costs. Despite their lower costs, these retailers have increased their purchases of displays and renovations to provide a customer experience.
Small industry operators rely heavily on human labor for daily operations. Employee duties essential to the success of a specialty store include customer service, maintaining store displays and
processing consumer purchases. Unlike capital costs, which can vary from year-to-year, labor costs are a consistent annual expenditure incurred by industry players. The overall capital intensity of the industry is expected to decline only slightly over the next five years and IBISWorld anticipates that the industry will continue to experience a low level of capital intensity through 2022.
Level The level of Technology Change is Low
Level The level of Volatility is Low
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 29
Operating Conditions
Regulation & Policy Regulations relevant to tobacco retailers are generally covered by individual states. Retailers need to apply for and obtain state tobacco licenses to sell cigarettes, cigars or any other tobacco products. On a federal level, the US Alcohol and Tobacco Tax and Trade Bureau (TTB), under the Department of the Treasury, aims to ensure the collection of tobacco federal excise taxes and to qualify applicants for permits to import tobacco products or to operate tobacco export warehouses. The TTB also undertakes tobacco inspections to verify an applicant’s qualification information, check the security of the premises and ensure tax compliance. Excise taxes are increasing during the period.
The Federal Trade Commission enforces the Surgeon General’s warning on certain tobacco products. There are also laws regulating the age of individuals who can purchase, use, possess or sell tobacco products, as well as regulations regarding smoking in public places. The Centers for Disease Control and Prevention describes a number of these regulations, such as smoking bans on domestic flights and smoking at locations that provide federally funded services to
children. While these do not directly affect the Small Specialty Retail Stores industry, they do affect consumers of tobacco products.
In 2016, the Food and Drug Administration (FDA) established new regulations deeming all tobacco products to be subject to the Federal Food, Drug, and Cosmetic Act. Consequently, hookahs, pipe tobacco, e-cigarettes, dissolvable tobacco products, and cigars are now under the purview of FDA regulations previously only applied to cigarettes and smokeless tobacco. This will affect a large swath of specialty retailers that are typically focused on non-cigarette tobacco products.
Other regulations Individual states generally maintain specific industry-relevant regulations. Some states have enacted their own antitrust laws to ensure that the general public is provided with the best product prices, quality and choice. Companies must comply with the Fair Labor Standards Act, which establishes a minimum wage, overtime and other working conditions. Additionally, store owners must comply with the
Revenue Volatility continued
SOURCE: WWW.IBISWORLD.COM
Volatility vs Growth
Re ve
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y* (%
)
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Five-year annualized revenue growth (%) –30 –10 10 30 50 70
Hazardous
Stagnant
Rollercoaster
Blue Chip
* Axis is in logarithmic scale
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.
When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.
Small Specialty Retail Stores
Level & Trend The level of Regulation is Light and the trend is Increasing
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 30
Operating Conditions
Industry Assistance The Small Specialty Retail Stores industry does not receive any specific government assistance. Tariff rates, however, do apply to certain products that the industry retails, as companies sell a range of unrelated products. Nevertheless, this factor does not pertain directly to the retail level because operators purchase goods from importers and wholesalers after the tariff has been applied. However, changes in tariff rates can alter the sources and prices of industry goods. For instance, a decline in tariff rates will result in falling purchase
costs, which can be passed onto the consumer. This allows retailers to remain price-competitive.
The industry does receive some indirect assistance from various industry associations. For example, the National Retail Federation works to strengthen retail communities, as well as provide career support for employees. Additionally, the tobacco industry has immense lobbying and association power. This is less robust at the retail level, but the Cigar Association and the National Association of Tobacco Outlets work on retailer’s behalf.
Regulation & Policy continued
provisions of the Americans with Disabilities Act of 1990, as amended, which requires stores to be accessible to customers with disabilities and protects those with disabilities from
discrimination. Recent trends toward increasing state level minimum wages are expected to pose a threat to small operators that rely on low wage labor to run specialty stores.
Level & Trend The level of Industry Assistance is Low and the trend is Steady
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 31
Key Statistics Revenue
($m)
Industry Value Added
($m) Establish-
ments Enterprises Employment Exports Imports Wages ($m)
Domestic Demand
E-commerce sales (%)
2008 31,247.1 4,942.5 134,115 130,140 221,320 -- -- 3,787.8 N/A 3.6 2009 30,339.4 4,440.0 132,353 127,902 213,307 -- -- 3,502.9 N/A 4.0 2010 31,028.0 4,926.9 134,223 129,729 215,522 -- -- 3,590.1 N/A 4.5 2011 32,733.7 5,237.0 137,035 132,554 219,680 -- -- 3,644.3 N/A 4.9 2012 32,043.2 5,118.1 139,284 134,620 219,085 -- -- 3,518.2 N/A 5.3 2013 31,518.8 5,276.3 138,770 134,104 224,021 -- -- 3,675.4 N/A 5.8 2014 31,037.6 5,446.0 140,578 135,888 231,795 -- -- 3,904.8 N/A 6.4 2015 31,573.6 5,784.3 140,941 136,097 234,035 -- -- 3,955.2 N/A 7.3 2016 31,513.2 5,666.9 140,466 135,621 233,415 -- -- 3,944.6 N/A 8.2 2017 31,421.6 5,561.1 139,503 134,651 232,382 -- -- 3,927.1 N/A 9.2 2018 31,326.3 5,454.5 139,003 134,155 231,462 -- -- 3,911.1 N/A 10.3 2019 31,236.4 5,360.2 138,266 133,418 230,572 -- -- 3,895.7 N/A 11.4 2020 31,152.9 5,278.5 137,959 133,122 229,796 -- -- 3,882.1 N/A 12.5 2021 31,070.9 5,222.1 137,738 132,907 229,413 -- -- 3,873.9 N/A 13.6 2022 30,999.0 5,183.0 138,084 133,283 229,458 -- -- 3,871.8 N/A 14.5 Sector Rank 28/63 29/63 3/63 4/63 20/63 N/A N/A 26/63 N/A N/A Economy Rank 349/1608 491/1551 72/1608 75/1608 201/1608 N/A N/A 437/1608 N/A N/A
IVA/Revenue (%)
Imports/ Demand
(%)
Exports/ Revenue
(%)
Revenue per Employee
($’000) Wages/Revenue
(%) Employees
per Est. Average Wage
($)
Share of the Economy
(%) 2008 15.82 N/A N/A 141.19 12.12 1.65 17,114.59 0.03 2009 14.63 N/A N/A 142.23 11.55 1.61 16,421.87 0.03 2010 15.88 N/A N/A 143.97 11.57 1.61 16,657.70 0.03 2011 16.00 N/A N/A 149.01 11.13 1.60 16,589.13 0.03 2012 15.97 N/A N/A 146.26 10.98 1.57 16,058.61 0.03 2013 16.74 N/A N/A 140.70 11.66 1.61 16,406.50 0.03 2014 17.55 N/A N/A 133.90 12.58 1.65 16,845.92 0.03 2015 18.32 N/A N/A 134.91 12.53 1.66 16,900.04 0.04 2016 17.98 N/A N/A 135.01 12.52 1.66 16,899.51 0.03 2017 17.70 N/A N/A 135.22 12.50 1.67 16,899.33 0.03 2018 17.41 N/A N/A 135.34 12.49 1.67 16,897.37 0.03 2019 17.16 N/A N/A 135.47 12.47 1.67 16,895.81 0.03 2020 16.94 N/A N/A 135.57 12.46 1.67 16,893.68 0.03 2021 16.81 N/A N/A 135.44 12.47 1.67 16,886.14 0.03 2022 16.72 N/A N/A 135.10 12.49 1.66 16,873.68 0.03 Sector Rank 36/63 N/A N/A 47/63 31/63 60/63 48/63 29/63 Economy Rank 1302/1551 N/A N/A 1216/1608 1111/1608 1488/1608 1479/1608 491/1551
Figures are in inflation-adjusted 2017 dollars. Rank refers to 2017 data.
Revenue (%)
Industry Value Added
(%)
Establish- ments
(%) Enterprises
(%) Employment
(%) Exports
(%) Imports
(%) Wages
(%)
Domestic Demand
(%)
E-commerce sales (%)
2009 -2.9 -10.2 -1.3 -1.7 -3.6 N/A N/A -7.5 N/A 11.1 2010 2.3 11.0 1.4 1.4 1.0 N/A N/A 2.5 N/A 12.5 2011 5.5 6.3 2.1 2.2 1.9 N/A N/A 1.5 N/A 8.9 2012 -2.1 -2.3 1.6 1.6 -0.3 N/A N/A -3.5 N/A 8.2 2013 -1.6 3.1 -0.4 -0.4 2.3 N/A N/A 4.5 N/A 9.4 2014 -1.5 3.2 1.3 1.3 3.5 N/A N/A 6.2 N/A 10.3 2015 1.7 6.2 0.3 0.2 1.0 N/A N/A 1.3 N/A 14.1 2016 -0.2 -2.0 -0.3 -0.3 -0.3 N/A N/A -0.3 N/A 12.3 2017 -0.3 -1.9 -0.7 -0.7 -0.4 N/A N/A -0.4 N/A 12.2 2018 -0.3 -1.9 -0.4 -0.4 -0.4 N/A N/A -0.4 N/A 12.0 2019 -0.3 -1.7 -0.5 -0.5 -0.4 N/A N/A -0.4 N/A 10.7 2020 -0.3 -1.5 -0.2 -0.2 -0.3 N/A N/A -0.3 N/A 9.6 2021 -0.3 -1.1 -0.2 -0.2 -0.2 N/A N/A -0.2 N/A 8.8 2022 -0.2 -0.7 0.3 0.3 0.0 N/A N/A -0.1 N/A 6.6 Sector Rank 52/63 44/63 51/63 52/63 52/63 N/A N/A 51/63 N/A N/A Economy Rank 1388/1608 1271/1551 1309/1608 1306/1608 1335/1608 N/A N/A 1365/1608 N/A N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM
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WWW.IBISWORLD.COM Small Specialty Retail Stores in the US April 2017 32
Apr 2015 - Mar 2016 by company revenue Apr 2012 - Apr 2013 - Apr 2014 - Apr 2015 - Small Medium Large Mar 2013 Mar 2014 Mar 2015 Mar 2016 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 1.7 1.8 1.8 1.8 1.9 1.6 1.3 Quick Ratio 0.5 0.5 0.6 0.5 0.5 0.5 0.5 Sales / Receivables (Trade Receivables Turnover) 43.3 74.8 68.7 119.9 329.5 47.6 29.3
Days’ Receivables 8.4 4.9 5.3 3.0 1.1 7.7 12.5 Cost of Sales / Inventory (Inventory Turnover) 5.0 4.7 5.2 5.0 4.8 5.7 5.5
Days’ Inventory 73.0 77.7 70.2 73.0 76.0 64.0 66.4 Cost of Sales / Payables (Payables Turnover) 13.3 15.7 16.5 19.3 22.2 14.7 12.2
Days’ Payables 27.4 23.2 22.1 18.9 16.4 24.8 29.9 Sales / Working Capital 11.4 10.9 12.1 11.6 11.1 12.4 11.8
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) / Interest 5.4 5.6 6.9 6.3 4.8 11.1 5.8
Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 2.4 4.6 3.6 2.6 2.3 4.4 n/a
Leverage Ratios
Fixed Assets / Net Worth 0.4 0.4 0.4 0.4 0.4 0.3 0.7 Debt / Net Worth 2.1 2.2 1.9 1.6 1.5 1.6 1.8 Tangible Net Worth 19.2 20.2 28.8 28.5 26.2 36.4 26.0
Operating Ratios
Profit before Taxes / Net Worth, % 28.7 29.9 33.0 27.1 27.1 30.1 22.1 Profit before Taxes / Total Assets, % 8.8 8.5 10.2 10.8 11.1 10.7 9.1 Sales / Net Fixed Assets 36.1 35.4 38.8 31.6 30.7 40.5 14.8 Sales / Total Assets (Asset Turnover) 2.8 3.0 3.1 3.1 3.0 3.3 2.3
Cash Flow & Debt Service Ratios (% of sales)
Cash from Trading 38.8 39.2 37.9 37.8 40.7 27.1 31.6 Cash after Operations 3.6 3.7 4.4 3.3 3.3 3.4 4.4 Net Cash after Operations 3.9 3.8 4.5 3.9 3.9 3.7 4.0 Cash after Debt Amortization 0.6 0.7 1.2 0.8 0.7 0.8 0.3 Debt Service P&I Coverage 1.8 2.4 2.8 2.3 1.6 3.3 3.6 Interest Coverage (Operating Cash) 3.8 5.3 5.7 4.9 3.2 7.7 11.2
Assets, %
Cash & Equivalents 11.6 13.0 13.6 12.9 13.3 12.4 10.1 Trade Receivables (net) 14.4 12.2 12.2 10.6 9.7 13.1 11.0 Inventory 41.5 42.0 39.4 42.6 43.2 42.6 36.8 All Other Current Assets 2.8 3.3 4.0 2.0 1.6 3.1 2.8 Total Current Assets 70.3 70.5 69.1 68.1 67.9 71.3 60.7 Fixed Assets (net) 17.4 16.8 17.6 18.2 19.1 15.1 19.6 Intangibles (net) 4.6 6.2 6.4 6.8 6.2 6.9 13.3 All Other Non-Current Assets 7.7 6.4 6.9 6.8 6.9 6.7 6.3 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 3,851.9 4,188.1 4,549.1 4,388.8 433.1 1,027.4 2,928.2
Liabilities, %
Notes Payable-Short Term 15.3 13.6 11.8 11.1 10.8 12.0 11.0 Current Maturities L/T/D 3.1 2.6 2.3 2.4 2.6 1.5 2.8 Trade Payables 18.0 16.9 16.3 16.2 15.2 19.2 16.1 Income Taxes Payable 0.1 0.1 0.1 0.2 0.1 0.2 0.6 All Other Current Liabilities 12.6 12.0 10.7 14.6 16.5 9.8 9.9 Total Current Liabilities 49.0 45.3 41.1 44.4 45.2 42.8 40.3 Long Term Debt 15.4 16.5 15.5 14.1 15.2 11.3 12.2 Deferred Taxes 0.2 0.1 0.2 0.1 0.1 0.1 0.2 All Other Non-Current Liabilities 11.5 11.7 8.0 6.1 7.1 2.5 7.9 Net Worth 23.8 26.4 35.2 35.3 32.4 43.3 39.3 Total Liabilities & Net Worth ($m) 3,851.9 4,188.1 4,549.1 4,388.8 433.1 1,027.4 2,928.2
Maximum Number of Statements Used 487 455 453 551 394 120 37
Industry Financial Ratios
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.
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Jargon & 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 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.
Industry Jargon
IBISWorld Glossary
BIG-BOX STORE A retail store that is differentiated by its sheer size and large range of products, including electronics, household goods and other consumer products.
BRICK-AND-MORTAR STORE A store that has a physical presence and location, as opposed to an online retailer.
E-CIGARETTE A device that vaporizes tobacco liquids, to avoid inhaling smoke.
E-TAILER A retailer that primarily sells goods and services via the internet. Many of these companies do not have brick-and-mortar locations.
ELECTRONIC DATA INTERCHANGE The transmission of electronic documents between businesses from one computer system to another.
HOOKAH Pipe instrument for vaporizing and smoking various tobacco products.
POINT OF SALE A system used at checkout in retail stores using computers and cash registers to capture transaction data at the time and place of sale.
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Jargon & Glossary
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.
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.
IBISWorld Glossary continued
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