Hardware Retailing

DEC 2018

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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HARDWARE RETAILING | December 2018 32 Overall 2017 Business Performance Retail Store Performance T he following data from the 2018 Cost of Doing Business Study is divided into three sections so retailers can compare their businesses' performance with home improvement operations that are similar to theirs. NRHA segments the numbers by three types of retail outlets— hardware stores, home centers and lumberyards. The complete 28-page study, with a more detailed breakdown of the data, is available to buy at nrha.org and is free to NRHA training members. Hardware Stores Hardware stores reported somewhat mixed results, experiencing a slight dip in profit before taxes and no year-over-year change in average sales per customer, which stayed at $22. Typical stores' average operating profit was 3.6 percent. Top-performing stores also experienced lower profit before taxes, though an average of 9.1 percent was still healthy. An increase of 240 basis points in the cost of goods sold appears to have contributed to bottom-line decreases for both typical and high-profit operations. In addition, typical stores' cash on hand slipped from 7.5 percent to 4.6 percent, and high-profit stores fell from 11.9 percent to 9.7 percent. Inventory productivity improved at typical stores. Inventory turns averaged 2.4 times, generating overall sales per square foot of $193— a record high for hardware store study participants. Top-performing hardware stores did a better job of controlling expenses than typical stores. High-profit operations' payroll expenses were 18.7 percent of sales, while typical stores' payroll costs were 21.7 percent. Home Centers Home centers reported a solid year overall, with growth in sales and gross margin. For typical stores, gross margin after rebate grew by 230 basis points, and sales were 7.4 percent higher than in the prior year. Profit before taxes was up for typical stores and top performers, at 3.1 percent and 6.3 percent, respectively. Home centers' better management of expenses contributed to a solid year overall. Typical home centers' payroll was 16.7 percent of profits and high-performing operations' payroll was 17.4 percent, showing year-over-year cost decreases. Typical stores had a record low accounts payable of 6.7 percent. In addition, home centers' cost of goods sold went down 140 basis points and rebates were up 90 basis points, contributing to bottom-line improvements from the previous fiscal year. High-profit stores also controlled other operating expenses better than typical stores, with a decrease from 9 percent in the year prior to 6.7 percent. Typical home centers' other operating expenses increased from 6.7 percent to 8.7 percent. Lumberyards Lumber and building material sellers, like home centers, experienced sales growth in the most recent fiscal year, but had positive and negative results in other areas. Sales increased by 7.4 percent, and sales per customer also got a boost, growing 3.5 percent to $206. Average sales per square foot were $872 and inventory per square foot was $166, hitting record highs for lumberyard participants in the study. However, employee productivity and gross margin after rebate were down from the prior year. Typical stores reported average gross margins of 23.2 percent, for a 25-year low. Typical lumberyards' profit before taxes was 3.7 percent, a dip from 4.2 percent. Top-performing operations fared better, with profit increasing from 7 percent in 2016 to 7.7 percent in 2017. High-profit stores had higher payroll percentages, occupancy costs and other operating costs than their typical counterparts, suggesting that lower-performing operations had trimmed expenses to the point of costing productivity. Customer counts at typical stores were flat year over year at just over 29,000 people, while high-profit stores made impressive strides. The top performers saw a nearly 50 percent increase in customer counts, averaging 43,000 customers for the fiscal year.

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