2007 Benchmark Study: A look into retailers' financial health

Cost hikes offset volume, price increases for some retailers
By Jenni Chase
January 1, 2008
RETAIL, AUTO : FINANCE, STATISTICS, TRENDS & ANALYSIS

Figure 1Auto glass repair and replacement retailers anticipated net income would decline 3 percent in 2007, according to the 2007 National Glass Association Competitiveness Survey. The primary culprits: rising energy, fuel and insurance costs.

Conducted by The MPI Group, Shaker Heights, Ohio, the survey provides a comprehensive view of the performance and business practices of 22 U.S. auto glass repair and replacement retailers in 2006. Survey respondents consist primarily of dealer/retailers with annual sales of less than $5 million that attribute 50 percent or more of their business to automotive glass services.

Financial health
Just under half of respondents reported their sales volume increased in 2006 (See chart No. 1), and the majority anticipated that trend would continue. Overall, retailers expected net sales to grow a median 6 percent in 2007.

Cost increases continued to plague the industry, however, with the majority reporting hikes across the board in 2006 for materials, labor, transportation, healthcare, and fuel and energy (See chart No. 2). Per-unit costs, excluding purchased materials, rose 6-10 percent in 2006  for 35 percent of retailers.

Figure 2


 Although 30 percent of retailers said they increased customer prices 1 percent to 5 percent in 2006, few said those increases had a positive impact Figure3on profitability. Instead, respondents pointed to new customers in existing markets, operations improvements, and new services and product offerings as having the most positive impact on their bottom line (See chart No. 3).

Overall, retailers reported median net income of 8 percent in 2006, predicting it would decline to 5 percent in 2007 (See chart No. 4).

Figure 4


Threats to profitability
It comes as no surprise that retailers see energy and fuel costs as the greatest threat to profitability (See chart No. 5), with the U.S. Department of Energy’s Energy Information Administration predicting gasoline prices will hit more than $3.40 per gallon in Spring 2008. The good news is the Washington, D.C., agency anticipates only moderate gains for natural gas prices this year, according to its December 2007 “Short-Term Energy Outlook.”

Increasing insurance costs also rank high among retailers’ concerns. In 2006, about 66 percent of firms Figure 5surveyed reported healthcare costs rose more than 5 percent. In 2007, premiums for employer-sponsored health insurance rose 6.1 percent, according to the Kaiser Family Foundation and Health Research and Educational Trust in Menlo Park, Calif. The average premium increase continues to outpace workers’ earnings and inflation, according to the group’s “2007 Employer Health Benefits Survey.”
 

 

 

 

A copy of the full report is available at http://www.kff.org/insurance/7672/index.cfm.

Finding skilled labor remains one of retailers’ biggest challenges, landing at No. 3 on their list of threats to profitability in NGA’s survey. Despite a sales volume increase, respondents’ workforce remained unchanged in 2006, averaging 14 full-time employees. More than 55 percent of retailers anticipated 2007 would bring more of the same, with only 11 percent of respondents predicting industrywide employment would increase 1 percent to 5 percent in 2007.
 

Predictions
Forty percent of retailers in NGA’s survey expected customer spending to increase 1 percent to 5 percent in 2007 (See chart No. 6). Plans to grow Figure 6sales in 2007 hinged on attracting new customers in existing markets, expanding into new markets and increasing prices. In terms of process improvements, retailers planned to target supplier management, customer service and purchasing (See chart No. 7). Just 5.6 percent of respondents anticipated they would sell their operation in 2007 (See chart No. 8).

For more information on how retailers fared in 2007 and their predictions for 2008, look for NGA’s 2008 Competitiveness Survey results in upcoming issues of AutoGlass.

Figure 7

Figure 8