Credit Research Foundation Staff President Bill Balduino VP Research & Education Matt Skudera CFO Cheryl Weaverling Manager Member Services Barbara Clapsadle Communications Manager Tom Diana Chairman & Board of Trustees Chairman Sharon Nickerson Acushnet Company Past Chairman Marty Scaminaci Bemis Company Inc Vice-Chairman, Finance Frank Sebastian SLD of adidas Vice-Chairman, Membership Art Tuttle American Greetings Vice-Chairman, Research Michael Bevilacqua PepsiCo Trustees Kurt Albright Uline Inc Dawn Burford InSinkErator (an Emerson Company) Paul Catalano ABC Amega Peter Knox Nestle USA Abigail Ledger Avery Dennison Jackie Mulligan Proctor & Gamble Distributing LLC I. Economic State of Retailing Online and On-ground Retailing: The Shifting of the Ground By Steven C. Isberg, Ph.D Credit Research Foundation Sr Research Fellow Associate Professor of Finance, University of Baltimore Introduction and Overview Many bricks and mortar (or on-ground) retailers seem to be taking a pounding in the markets and economy lately. Big names in traditional retailing are experiencing the effects of long term declining sales, and seem to be on the path to substantial restructuring, if not extinction. Even Walmart and Target, long considered to be among the more resilient middle market retailers, have seen sales growth substantially slow down. Retailers serving what is considered to be the lower end of the market, however, seem to be somewhat immune to, if not thriving from, the effects of current economic and social conditions. The evidence shows that on-ground retail is growing at the higher and lower ends, and falling in the traditional middle market segment of the industry. Exhibit 1 below shows sales and average annual sales growth from 2012 through 2016 for a group of on-ground retailers. As can be seen, the high end of the growth spectrum includes low price retailers such as Five Below, Ollie’s, Pricesmart, Dollar General, Ross, and TJ Maxx. Higher end retailers such as Nordstrom, Zumiez, and Urban Outfitters are also included, as are several retailers that have significant online sales, such as Duluth Trading Company, Sportsmans Warehouse, and Cabelas.1 Exhibit 1 Sales ($MM) and Average Annual Sales Growth for Selected Bricks and Mortar Retailers: 2012-2016 Company FIVE BELOW INC DULUTH HOLDINGS INC OLLIE'S BARGAIN OUTLET SPORTSMANS WAREHOUSE PRICESMART INC DOLLAR GENERAL CORP DICKS SPORTING GOODS INC CABELAS INC ROSS STORES INC TJX COMPANIES INC URBAN OUTFITTERS INC ZUMIEZ INC NORDSTROM INC COSTCO WHOLESALE HIBBETT SPORTS INC BIG 5 SPORTING GOODS CORP WAL-MART STORES INC OFFICE DEPOT INC GAP INC KOHL'S CORP PENNEY (J C) CO BIG LOTS INC DILLARDS INC TARGET CORP MACY'S INC BON-TON STORES INC STAGE STORES INC BUCKLE INC WAL MART DE MEXICO SA 2012 $ 418.83 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 535.40 163.09 540.72 643.16 2013 2,299.81 17,504.16 6,213.17 3,703.46 10,230.35 27,422.69 3,086.61 724.34 12,540.00 102,870.00 851.97 993.62 476,294.00 11,242.00 16,148.00 19,031.00 11,859.00 5,124.76 6,691.78 71,279.00 27,931.00 2,834.06 1,609.48 1,128.00 32,460.02 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 680.22 231.87 637.98 660.00 2014 2,517.57 18,909.58 6,814.48 3,773.74 11,041.68 29,078.40 3,323.08 811.55 13,506.00 110,212.00 913.49 977.86 485,651.00 16,096.00 16,435.00 19,023.00 12,257.00 5,177.08 6,780.13 72,618.00 28,105.00 2,822.90 1,638.57 1,153.14 29,897.47 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 831.95 304.16 762.37 706.76 2015 2,802.60 20,368.56 7,270.97 4,151.65 11,940.00 30,944.93 3,445.13 804.18 14,437.00 113,666.00 943.10 1,029.10 482,130.00 11,727.00 15,797.00 19,204.00 12,625.00 5,190.58 6,754.55 73,785.00 27,079.00 2,789.50 1,604.43 1,119.62 27,677.26 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2016 1,000.41 376.12 890.32 779.96 2,904.75 21,986.59 7,921.98 4,365.20 12,866.76 33,183.74 3,545.79 836.27 14,757.00 116,073.00 972.96 1,021.24 485,338.00 11,021.00 15,516.00 18,686.00 12,547.00 5,200.44 6,418.01 69,495.00 25,778.00 2,674.35 1,442.72 974.87 25,822.57 Ave Ann Growth 24.32% 23.23% 13.28% 10.30% 9.17% 8.23% 7.94% 7.89% 7.26% 6.41% 6.13% 5.72% 5.01% 4.57% 4.41% 2.08% 0.88% 0.75% -0.22% -0.78% -0.85% -0.94% -1.26% -1.32% -1.77% -2.66% -3.24% -3.50% -5.06% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 526.94 2,045.16 16,022.13 5,836.12 3,222.03 9,721.07 25,878.37 2,794.92 669.39 12,134.00 97,062.00 818.70 940.49 468,651.00 10,695.65 15,651.00 19,279.00 12,985.00 5,400.12 6,751.60 73,301.00 27,686.00 2,978.84 1,645.80 1,124.01 31,786.18 ABERCROMBIE & FITCH $ 4,510.81 $ 4,116.90 $ 3,744.03 $ 3,518.68 $ 3,326.74 -7.33% SEARS HOLDINGS CORP $ 39,854.00 $ 36,188.00 $ 31,198.00 $ 25,146.00 $ 22,138.00 -13.67% 1 Data Sources: Standard and Poor’s Research Insight 2 ©2017 Credit Research Foundation