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 STORES nrha.org | 7 1-800-772-4424 | phone Cost of Doing Business Study Business Services and Resources This annual study provides detailed financial information from hardware stores, home centers and lumber/building material outlets in the U.S. Retailers use this resource to compare their operations to average and high-profit businesses. It can also be used as a tool to determine new ways to increase profits. To learn more about the study, visit nrha.org/codb. Participation is completely free and confidential. All retailers who participate in the study will receive: • a free copy of the completed study ($499 for non participants) • a Personalized Financial Analysis with composite financial statements • their business's ratios, strategic profit model and what-if scenario generator NRHA partners with expert organizations in an effort to save you money on things like insurance and payment processing. Learn more about these services at nrha.org/business-services. Health Insurance & Prescription Savings The NRHA Health Insurance Program and RxCut Prescription Savings Card program are both designed to save U.S. business owners money on health care without sacrificing benefits. Credit Card Processing & Payment Services Clearent can offer retailers low payment processing fees and provides customers with the most up-to-date technology. Business owners can tap into several cutting- edge payment technologies. Workers' Compensation & Liability Insurance Member Insurance provides risk management services and affordable insurance solutions specifically designed for independent home improvement businesses. Human Resources Management Group Management Services takes on human resources tasks that many small and midsize businesses don't have the time or expertise to effectively manage, such as payroll and risk management. + @NorthAmericanRetail HardwareAssociation @nrha_official @nrha_official @HardwareRetailing @hardwareretail Stay Connected Stay up to date on trends, news and more with NRHA and Hardware Retailing by following along on social media. 5 North American Retail Hardware Association Key Performance Differences at a Glance • Sales per customer at hardware stores, a metric which had been climbing in recent years, softened a bit in 2017, where the average store recorded sales per customer of just $22, with high-performance stores registering only slightly higher at $23. • Profit before taxes was down slightly from last year at both average stores (3.6%) and high-profit stores (9.1%). • Inventory turns averaging 2.4x were the highest posted by the overall group since 2001. • More productive inventory has translated to the highest ever sales per square foot for the overall group at $193. It was a bit of a mixed year for the hardware stores responding to our survey. On one hand, the group saw an average sales increase of 4.9% and posted record sales per square foot and GMROI results. On the other hand however, these record metrics didn't seem to translate into a stronger bottom line, which dipped from an all-time high of 4.2% last year to just 3.6% this year. Even the operating profits at the highest quartile of performers in our study fell off year over year. That being said, the high-performance stores in our group saw a still-healthy average operating profit of 9.1% in this year's study. One reason for the slip in bottom-line performance across all respondents seems to be an increase in the Cost of Goods Sold. COGS were up 240 basis points from last year and the highest we have seen since 2013. When it comes to controlling expenses, high-performance stores are still doing a better job than their average counterparts. Payroll expense as a percent of sales at the average store came in at 21.7%, where high-profit stores held this number to 18.7%. Occupancy expenses were also better controlled by the top performers who held this number to about 6.6% of sales versus the average of 7.2%. A couple metrics that emerged during this year's study that you may want to keep an eye on are cash on hand, accounts payable and inventory per square foot. Cash on hand for the average hardware store came in at just 4.6%, which is the lowest it has been since 2006, while accounts payable, at 10.6%, are the highest they have been since 2005. Combine these numbers with the fact that the average inventory per square foot recorded by this year's respondents was just $47, the lowest it has been since 2006, and there could be concerns about the impact this could have on growth over the short term. Key Business Indicators Median Sales Per Customer 0% 10% 20% 30% Typical High-Profit 40% 50% 41.4% 21.7% 3.6% 41.8% 18.7% 9.1% Gross Margin After Rebate Total Payroll Profit Before Taxes Hardware Stores Hardware stores carry core lines of home repair, renovation and maintenance products, including fasteners, tools, plumbing and electrical supplies. They carry little or no lumber and building materials. 2018 Cost of Doing Business Study 4 $15 2013 2014 2015 2016 2017 $20 $30 Typical High-Profit $25 $21 $20 $22 $20 $21 $23 $22 $22 $30 $23

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