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NSGA: Retailers Improving Performance

Published November 20, 2008

MOUNT PROSPECT, IL (BRAIN)—Almost all specialty retailers, from small to large, improved key measures of profitability and productivity versus two years ago, according to data in the newly released NSGA Cost of Doing Business Survey.

Almost 150 specialty retailers participated in the survey, done once every two years by the National Sporting Goods Association.

The smallest specialty retailers, those with sales of less than $500,000, improved net profit before taxes to total revenue to 4.9 percent versus 0.5 percent two years ago. Shops with sales of $500,000 to $1 million also improved net profit before taxes to total revenue to 4.9 percent from 2.3 percent two years ago. Shops with sales of $1 million to $2 million failed to match the results of two years ago, showing net profit before taxes to total revenue of 5.1 percent versus 5.5 percent two years ago. The largest specialty retailers, those with sales of more than $2 million, improved net profit before taxes to total revenue to 4.2 percent versus 3.6 percent two years ago.

In other key measures of profitability—net profit before taxes to total assets, net profit before taxes to net worth, owners compensation and profits to revenue and EBIT to revenue—almost all specialty retailers showed strong gains from two years. The most dramatic increase was for shops with sales of less than $500,000, whose net profit before taxes to net worth went from a negative 0.1 percent two years ago to a positive 14.5 percent in the current study.

NSGA's survey is done by the same research firm that conducts the NBDA's Cost of Doing Business Survey, which was published this summer. According to industry consultant Jay Townley, the highlights for both surveys are similar in many ways.

NBDA's survey revealed that the annual gross revenue for the typical bike shop in the U.S. increased more than 18 percent from 2005 to 2007, from $549,000 to $649,526 per store.

Also, net profit before taxes increased substaintially from 2005 to 2007, from 1.9 percent of gross revenue to 3.8 percent of gross revenue—an increase of 136 percent, or $14,186 in two years. From 2005 to 2007 the typical store had a pre-tax profit that increased from $10,431 to $24,617.

Moreover, typical total operating expenses for the typical bike shop dropped to 38.6 percent of total annual revenue in 2007, from 43.3 percent in 2005.

"This is a very good thing, and means bike shops are running more efficient operations, reducing their costs of doing business by almost five points in two years," Townley said.

Sporting good retailers and bike shops specifically did well for themselves from 2004-2007, increasing their gross revenue and profitablity as their costs (as a percent of revenue) came down.

"Their balance sheets and cash flow are in good shape, and as a result, sporting goods retailers, including bike shops are in a very good position financially to ride out the current economic downturn, with the possibility of gaining market share—and at the least should be ready and able to grow when the economy begins to turn up again, Townely said.

—Jason Norman

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