WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 1
Grand design: Tough external competition is expected to precipitate revenue decline
This report was provided to Autobahn Consultants (2134210691) by IBISWorld on 27 October 2019 in accordance with their license agreement with IBISWorld
IBISWorld Industry Report 45399 Small Specialty Retail Stores in the US July 2019 Claire O’Connor
2 About this Industry 18 International Trade 29 Revenue Volatility 2 Industry Definition 19 Business Locations 30 Regulation and Policy 2 Main Activities 31 Industry Assistance 2 Similar Industries 21 Competitive Landscape 3 Additional Resources 21 Market Share Concentration 32 Key Statistics 21 Key Success Factors 32 Industry Data 4 Industry at a Glance 21 Cost Structure Benchmarks 32 Annual Change 23 Basis of Competition 32 Key Ratios 5 Industry Performance 24 Barriers to Entry 33 Industry Financial Ratios 5 Executive Summary 25 Industry Globalization 5 Key External Drivers 34 Jargon & Glossary 7 Current Performance 26 Major Companies 9 Industry Outlook 26 Leslie’s Poolmart Inc. 11 Industry Life Cycle 26 The Container Store Group Inc. 27 The Yankee Candle Company Inc. 13 Products and Markets 27 Williams-Sonoma 13 Supply Chain 13 Products and Services 28 Operating Conditions 16 Demand Determinants 28 Capital Intensity 17 Major Markets 29 Technology and Systems www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 2 About this Industry
Industry Definition Industry operators retail specialized general merchandise auction houses lines of goods: kitchenware, art (except electronic auctions), but supplies, cigarettes and cigars, excludes mass merchandisers, collectors’ items, fireworks and department stores, grocery stores, trophies. This industry also includes warehouse clubs and supercenters.
Main Activities The primary activities of this industry are Retailing general merchandise Retailing tobacco and tobacco products (e.g. cigarettes and cigars) Retailing art supplies Retailing collectors’ items (e.g. autographs, cards, coins and stamps) Retailing fireworks Retailing candles Retailing religious goods (except books) Retailing trophies Retailing specialized occupational supplies Retailing calendars
The major products and services in this industry are Art materials and supplies Collectibles and monuments Groceries and alcoholic beverages Home goods Pools, pool chemicals, pool supplies and accessories Tobacco products and smokers’ accessories Other
Similar Industries 44831 Jewelry Stores in the US This industry retails a wide array of jewelry and time pieces.
45211 Department Stores in the US This industry retails a wide range of merchandise including apparel, cosmetics and appliances.
45322 Gift Shops & Card Stores in the US This industry retails a variety of goods, including greeting cards and gift items such as glassware.
45331 Used Goods Stores in the US This industry retails a broad range of merchandise, such as antiques, clothing and books.
45392 Art Dealers in the US This industry includes art galleries and art auction houses that retail a broad range of original and limited edition artwork.
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 3
About this Industry
Similar Industries 45411a E-Commerce & Online Auctions in the US continued This industry retails a wide array of merchandise via the internet. 45411b Mail Order in the US This industry retails a wide array of products via mail order or catalogs.
Additional Resources For additional information on this industry www.awardspersonalization.org Awards and Personalization Association www.iamart.org iAMart www.candles.org National Candle Association www.nrf.com National Retail Federation www.tma.org Tobacco Merchants Association
IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 4 Industry at a Glance Small Specialty Retail Stores in 2019
Key Statistics Revenue Annual Growth 14–19 Annual Growth 19–24 Snapshot $38.6bn 3.2% -2.5% Profit Wages Businesses $2.0bn $5.0bn 141,850
Revenue vs. employment growth Per capita disposable income Market Share There are no major 8 4 players in this industry 4 2
0 0 % change % change -4 -2
-8 -4 Year 11 13 15 17 19 21 23 25 Year 13 15 17 19 21 23 25 Revenue Employment SOURCE: WWW.IBISWORLD.COM p. 26 Products and services segmentation (2019) 2.4% Art materials Key External Drivers and supplies 4.2% Per capita disposable Groceries and 7.5% alcoholic beverages income Home goods E-commerce sales Consumer 13.8% 34.3% Confidence Index Pools, pool chemicals, pool Tobacco products and supplies and accessories smokers' accessories Excise tax on tobacco products
15.8% Collectibles and monuments
p. 5 22.0% Other SOURCE: WWW.IBISWORLD.COM
Industry Structure Life Cycle Stage Decline Regulation Level Light Revenue Volatility Medium Technology Change Low Capital Intensity Low Barriers to Entry Low Industry Assistance Low Industry Globalization Low Concentration Level Low Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 32
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 5 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Executive Summary Operators in the Small Specialty Retail operators through one-stop shopping and Stores industry sell a diverse range of lower prices for similar products. products, from premium cigars to grave External competition has also driven markers. Due to its fragmented nature, underperforming retailers to exit the the industry is not driven by product- industry. However, while external specific trends but rather by broad competition has squeezed the industry’s macroeconomic variables. However, market size, rising income levels and individual segments do respond to confidence during the period have limited specific shifts in consumer preferences. revenue declines. Nonemployers and Over the five years to 2019, rising income small retail stores with low barriers to and employment have boosted demand entry dominate this industry, promoting throughout the retail sector. Despite this, a fluidity for companies to enter and exit. small specialty stores are experiencing Despite moderate revenue declines, the increasing competition from e-commerce number of enterprises in this industry is and department stores, limiting gains marginally increasing. Small companies are able to start up with low capital input, and they are increasingly attempting to Rising income and employment have boosted generate higher margins on more premium items. demand throughout the retail sector Over the five years to 2024, industry revenue is forecast to decline at an from increased consumer spending. annualized rate of 2.5% to $34.0 billion. Overall, IBISWorld expects industry IBISWorld anticipates consumer revenue to increase at an annualized rate spending will rise while consumer of 3.2% to $38.6 billion over the five confidence is expected to decrease. years to 2019. High growth in this period Consequently, increasing levels of has been driven by large increases in discretionary spending will focus on price 2015 and 2016 as a result of double-digit over specialty. Furthermore, industry growth in the Consumer Confidence participation is expected to expand at a Index in 2014 and 2015. much slower rate. Underperforming However, revenue is expected to companies are expected to exit, while the decline 4.2% in 2019 as e-commerce sales few large companies are expected to improve and consumer confidence wanes acquire smaller ones. Additionally, tough due to prolonged slow growth and external competition and the rising uncertainty. Discount department stores popularity of online sales are expected to and online retailers have increasingly reduce the industry’s share of the overall taken retail market share from industry retail sector.
Key External Drivers Per capita disposable income increase in 2019, representing a The majority of products supplied by potential opportunity for the industry. this industry are discretionary items. A rise in household disposable income E-commerce sales increases the propensity of consumers E-commerce retailers often offer to purchase these goods, leading to substitute industry products at heavily growth in demand. Per capita discounted prices. In addition, specialty disposable income is expected to items, such as rare cigars and collectibles,
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Industry Performance
Key External Drivers are sometimes easier to find and industry tend to be discretionary in continued purchase online. Therefore, as more nature, industry revenue tends to consumers visit online retailers for their positively correlate with the index. The shopping needs, demand for brick-and- Consumer Confidence Index is expected mortar establishments will fall. to decrease in 2019. E-commerce sales are expected to increase in 2019, posing a potential Excise tax on tobacco products threat to the industry. Tobacco sales have historically comprised almost one-third of revenue for the Small Consumer Confidence Index Specialty Retail Stores industry. As the The Consumer Confidence Index excise tax level on tobacco products measures consumers’ propensity to increases, tobacco purchases fall, harming spend their discretionary income, rather industry revenue. Excise taxes on tobacco than save. Since products sold by the are expected to increase in 2019.
Per capita disposable income E-commerce sales
4 2.5
2.0 2
1.5 0 1.0 $ trillion % change -2 0.5
-4 0 Year 13 15 17 19 21 23 25 Year 11 13 15 17 19 21 23 25
SOURCE: WWW.IBISWORLD.COM
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 7
Industry Performance
The Small Specialty Retail Stores industry Industry revenue Current retails specialized lines of goods, with 8 Performance operators offering a wide and distinct range of products, from cigarettes and pool supplies to funerary items. Therefore, broad 4 changes in consumer confidence and spending patterns, rather than product- 0
specific trends, drive overall industry % change performance. Several economic factors that -4 tend to improve industry revenue have been positive during the period. Industry -8 products tend to be highly discretionary, so Year 11 13 15 17 19 21 23 25 the industry relies on consumer trends. Employment figures have been strong SOURCE: WWW.IBISWORLD.COM during the period and the economy has been on a prolonged streak of positive jobs traditional advantage of specialty retailers growth. Recently, this trend has supported has been the scarcity of the products they increased wages and household income sell, but online retailers have eroded this levels, driving up retail sales. However, advantage. Additionally, since most of this overall revenue growth for the period has industry’s competitors retail a variety of been undermined by unfavorable consumer products within a single establishment, trends such as an increasing percentage of their fixed costs are spread over a much services conducted online. Over the five larger product base. Consequently, they are years to 2019, revenue is expected to usually able to undercut prices charged by increase at an annualized rate of 3.2% to small specialty retail stores and have used $38.6 billion. their cost advantages to capture a greater Industry operators experience high share of the retail market. In 2019, external competition from online retailers, industry revenue is expected to decline discount department stores, mass 4.2%, in line with the long-term trend. merchandisers and warehouse clubs. Most Revenue experienced high growth in 2015 of the products sold by this industry can and 2016 due to a drastic increase in also be found at these establishments; consumer confidence, which was great moreover, the industry’s competitors offer enough to facilitate growth despite the benefits of one-stop shopping. The e-commerce encroachment.
External competition Consumers have increasingly shifted their price, and convenience is increasingly intensifies business from specialty stores to warehouse integral to retail success. This trend has cut clubs and discount department stores. This into industry demand and has contributed external competition has siphoned revenue to long-term revenue decline. from industry operators by offering The primary threat confronting the convenience and price advantages. In industry is the growing prevalence of online addition, large retailers can achieve cost sales. Niche industry products, the savings through bulk purchasing and cornerstone of small retail locations, can generally offer lower prices than industry easily be found online. Moreover, operators. Despite growing consumer consumers can shop online for the best confidence during the five-year period, prices, while also gaining access to broader individuals have remained conscious of selections. The percentage of services
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 8
Industry Performance
External competition conducted online is expected to increase to price changes and individual income. intensifies from 11.0% in 2014 to 18.5% in 2019. Therefore, industry sellers often rely on continued Nonetheless, industry operators are able to consistent sales from these products. combat competition and limit declines by Increased federal excise taxes to discourage offering a positive in-store experience. smoking have had a negative effect on Stores focus on designed point-of-purchase tobacco sales (see the Regulation and Policy displays, upscale locations and intimate section). Reports from the Centers for product knowledge. As a result, stores Disease Control and Prevention (CDC) provide added value above price, and it has found that the percentage of adult smokers become increasingly fashionable among has decreased slowly during the five-year many consumers to shop at specialty stores. period, falling from 17.8% in 2013 to an Social concerns regarding small business expected 15.5% in 2016 (latest data owners and national efforts to “shop local” available). The decline is largely attributed also act to support the industry. However, to increased exposure to health warnings. these tend to have short-lived effects, as the However, other forms of tobacco products, novelty wears off in favor of lower prices, such as e-cigarette and chewing tobacco, greater selection and increased convenience. have risen in popularity. For example, the Tobacco products and accessories make number of middle school and high school up the largest product segment in the students using e-cigarettes increased from industry, representing an estimated 34.3% 2.1 million in 2017 to 3.6 million in 2018 of revenue. Tobacco products are (latest available data). In total, while tobacco discretionary purchases; however, many usage is declining, the use of alternative products tend to have an inelastic response tobacco products is increasing.
Stagnant margins Profit margins have stagnated at low shares of revenue during the period; however, as Operators are situating consumer confidence and spending have increased, higher-margin product lines themselves to provide have become more viable. Therefore, a retail experience that despite lower revenue and volume, some merits higher prices operators have succeeded in selling higher-margin items. Still, profit has been restricted by the prevalence of e-commerce, employees over the five years to 2019. This which provides a wider range of products at is driven by the expansion of large lower prices. Industry profit, measured as companies and the efforts of niche shops to earnings before interest and taxes, is provide better service. estimated to total 5.2% of revenue in 2019, The number of industry up from 4.1% in 2014. establishments is expected to increase The primary factor supporting industry at an annualized rate of 0.9% to 147,347 profitability has been the increased effort of establishments. This is largely due to operators to leverage their specialty nature. the few large industry retailers, which Companies are offering a value-added have expanded operations to gain shopping experience, but increased wages market share despite falling demand. and store front management costs still Profit has held steady due to shifting hinder profitability. Additionally, consumer sentiments that have employment is anticipated to increase at an benefited certain segments of the annualized rate of 2.8% to 266,539 industry. For instance, demand for
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 9
Industry Performance
Stagnant margins candles has increased significantly, and operators are situating themselves to continued specialty brands in particular are provide a retail experience that merits selling at higher prices while higher prices, rather than trying to maintaining low production costs. Thus match e-commerce’s price advantages.
IBISWorld forecasts that the Small and specialty items. Over the five years Industry Specialty Retail Stores industry will begin to 2024, revenue is expected to decrease Outlook to decline as external competition at an annualized rate of 2.5% to $34.0 intensifies. Revenue is forecast to billion. Consumer spending is forecast continue on a downward trend as to continue growing steadily during the consumer preferences shift toward other outlook period, but consumer retail sources for specialty goods. Beyond confidence will decline. Financial the pressure generated from external uncertainty and sluggish growth will competition, the industry will experience drag on consumers’ propensity to spend market conditions unfavorable to niche on discretionary items.
Online competition Competition from external retailers, especially e-commerce and auction Increasing competition websites, will increase over the next five years. The percentage of services conducted is expected to force online is expected to increase to 23.2% by unprofitable players to exit 2024. Additionally, e-commerce sales are the industry anticipated to increase at an annualized rate of 8.0% over the next five years. These online stores will continue to pose a major rare cigars, which are sometimes easier competitive threat to this industry. The to find online than in traditional brick- largest operators will be able to continue and-mortar stores. As companies like growing within the retail space through Amazon continue to move forward with their size and strong customer loyalty, but greater inventories and delivery these large retailers are only a small improvements, industry operators portion of the industry. The smaller increasingly lose value to consumers. For companies that comprise the bulk of the example, while local specialty cigar shops industry will experience pressure from once provided local convenience, they online retailers. The primary competitive will increasingly compete against online strength of small specialty stores will warehouses with greater selection, bulk continue to be experience and locality. pricing and fast delivery. Therefore, the Operators are increasingly focusing on space for industry companies to operate improving the in-store experience and is expected to shrink and only those that relying on conspicuous consumption by can effectively provide premium retail higher-income individuals. service will persist. Consumers are expected to Increasing competition is expected to increasingly shift to online shopping due force unprofitable players to exit the to its relative convenience. This factor is industry. Overall, the number of industry particularly pertinent for industry enterprises is expected to decrease at an products such as collectible items and annualized rate of 0.6% to 137,500
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Industry Performance
Online competition companies over the five years to 2024. for specialty products slows and continued Employment is anticipated to decrease at customers continue to use external a similar pace, exhibiting an annualized retailers, small operators that cannot decrease of 1.4% to 248,763 individuals generate sufficient operating margins will during the period. As growth in demand exit the industry.
Social and structural Over the next five years, rising consumer change aversion to smoking will continue to Sluggish growth will drag impede demand for tobacco products, the industry’s largest product segment. on consumers’ propensity According to the latest data released by to spend on discretionary the Centers for Disease Control and items Prevention, the goal is to decrease the percentage of smokers from 15.5% in 2016 to 12.0% by 2020. Greater increasingly rely on higher markups, but restrictions on where people can smoke, increased regulation will hinder gains to such as new e-cigarette bans in profit. As a result, profit margins are restaurants and public places, will further anticipated to decrease from 5.2% in discourage smoking and decrease tobacco 2019 to 5.0% in 2024. demand. In addition, excise tax increases Although the industry is in decline, a during the period will likely curb demand market remains for effective stores to for tobacco, with tobacco retailers operate in the industry. Consumer anticipated to experience an increasingly demand for specialty retail stores will regulated market. Food and Drug continue to be subject to shifting Administration regulations now cover a preferences. However, individuals are greater range of tobacco products. For expected to continue paying premiums example, in 2019, the FDA announced on retail items based on the perceived new restrictions on the sale of flavored value added by industry stores. Small e-cigarettes and proposed a ban of specialty retailers are forecast to menthol cigarettes and flavored cigars. As become increasingly located in higher a result, retailers of loose tobacco, income areas, whereas previously a premium cigars and electronic tobacco large portion were in rural or suburban products will encounter the regulatory areas without large department stores. strain that traditional cigarette retailers Industry viability will become have traditionally experienced. These increasingly reliant on servicing products are typically strong revenue particular local needs and foregoing producers for industry companies, as competition with large retailers. they provide an opportunity for elevated Therefore, despite the gradual decline margins through markups on premium of the industry overall, there is room items. As overall demand for tobacco for operators that can effectively tap products recedes, industry operators will into local markets.
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Industry Performance Life Cycle Stage The industry’s relative contribution to US GDP is expected to increase at a slower rate than US GDP during the 10-year period The industry’s size is expected to increase only slight during the 10-year period The industry is losing market share to discount retailers and online outlets
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Industry Performance
Industry Life Cycle The Small Specialty Retail Stores enterprises and establishments are industry is in the decline stage of its life estimated to increase slightly, mainly cycle. Over the 10 years to 2024, industry because barriers to entry are so low. While This industry is value added, which measures the underperforming operators will exit the in Decline industry’s contribution to GDP, is industry due to declining profitability and expected to increase at an annualized rate poor demand for their specialty items, the of 1.6%. During the same period, the US low barriers to entry make it easy for economy is projected to grow at an anyone to enter the industry. The long- annualized rate of 2.0%. The industry has term trend of a decline in smoking will exhibited little technological change that have a negative effect on sales of tobacco would affect growth and businesses are products, the industry’s largest product lagging behind trends in the overall retail segment. Warehouse clubs, discount sector. Furthermore, operators are losing department stores and online retailers consumers due to intense external have all effectively eroded the industry’s competition from online platforms, super market share by providing the centers and department stores. convenience of one-stop shopping and Tough competition is expected to lower prices. This trend is expected to constrain industry participation. Over the continue over the next five years, further 10 years to 2024, the number of contributing to the industry’s decline.
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Supply Chain KEY BUYING INDUSTRIES 56172 Janitorial Services in the US This industry purchases various janitorial equipment from specialty retail stores. 61161 Fine Arts Schools in the US This industry purchases art materials and supplies from specialty retail stores. 62161 Home Care Providers in the US This industry purchases nursing scrubs from specialty retail stores. 81311 Religious Organizations in the US This industry purchases goods from specialty retail stores. 99 Consumers in the US Consumers purchase various goods from specialty retail stores.
KEY SELLING INDUSTRIES 31310 Textile Mills in the US This industry supplies textile products such as flags. 33994 Art & Office Supply Manufacturing in the US This industry supplies art materials. 42392 Toy & Craft Supplies Wholesaling in the US This industry supplies fireworks, as well as traditional toys and craft supplies. 42494 Cigarette & Tobacco Products Wholesaling in the US This industry supplies tobacco, tobacco products and smokers’ accessories. 51119 Greeting Cards & Other Publishing in the US This industry supplies greeting cards and calendars.
Products and Services Products and services segmentation (2019) 2.4% Art materials and supplies 4.2% 7.5% Groceries and Home goods alcoholic beverages 13.8% Pools, pool chemicals, pool supplies and accessories 34.3% Tobacco products and smokers' accessories
15.8% Collectibles and monuments
22.0% Other Total $38.6bn SOURCE: WWW.IBISWORLD.COM
Tobacco products and an estimated 34.3% of revenue in 2019. smokers’ accessories These products include cigars, cigarettes, Tobacco products and smokers’ chewing tobacco and snuff, as well as accessories represent the industry’s accessories such as lighters, pipes, rolling largest product segment, accounting for papers, vaporizers and hookahs. Social
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Products & Markets
Products and Services and governmental efforts, including revenue through sales of collectibles and continued national anti-smoking campaigns and monument type items. As consumer state excise taxes, have contributed to a confidence increases during the period, reduction in the number of smokers over individuals are more like to make the five years to 2019. According to the discretionary expenditures on collectible latest data released by the Centers for items. Specifically, sales of collectible Disease Control and Prevention, the items are expected to account for 11.0% percentage of adult smokers in the of industry revenue, as prices increase. United States decreased from 17.8% in Additionally, trophies are included in this 2013 to an expected 15.5% in 2018 (latest segment, and consumer preferences available data). However, other forms of during the period have increased demand tobacco use are growing during the for trophies and plaques. A steady source period and e-cigarettes are now the most of revenue in this segment is derived commonly used tobacco products among from monuments, which include grave the younger generation. E-cigarette use markers, caskets and urns. As the median was estimated at 16.0% of high-school age of the population increases, as is the students in 2015, 13.6% of adults aged case during the current period, demand 18-24 in 2014 and 5.7% of adults 25 years for these items necessarily increases. As a or older in 2014 (latest available data) result, an aging population is expected to and increasing. Furthermore, 11.7% of bolster sales from stores specializing in high school students reported that they funerary products. used electronic cigarettes in the past 30 days in 2017, which marks an increase Pools, pool chemicals, pool from 1.5% in 2011. Additionally, the use supplies and accessories of smokeless tobacco products, like Small specialty stores specializing in chewing tobacco is increasing from pools and pool supplies are expected to previous lows, with adult use at 3.4% in generate 13.8% of industry revenue, 2014 and teenagers use at 5.5% in 2017. making this product segment one of the Furthermore, the number of middle and industry’s largest. Over the past five high school students using e-cigarettes years, an improving economy has buoyed increased from 2.1 million in 2017 to 3.6 replacement and maintenance demand for million in 2018. The number of smokers pools, keeping this product segment’s is decreasing at a slower rate than in overall share of revenue strong. Consumer previous decades, which bodes well for confidence and rising income levels drive industry participants. Despite campaigns the use of these products, as pools are and taxes hurting cigarette sales, other typically discretionary. However, the forms of use are maintaining product segment does supply products to more revenue. Although, competition from stable markets like public and private online retailers and non-specialty stores pools at large athletic facilities. Over the place significant pressure on tobacco next five years, this product line may be stores for sales. Over the five years to limited by falling consumer confidence. 2024, tobacco revenue for small specialty However, warmer average temperatures retail stores is forecast to slowly decline, have the possibility of supporting pool as societal and external business sales to a larger range of the country as pressures erode sales. more regions have longer pool seasons.
Collectibles and monuments Home goods In 2019, small specialty retail shops are Home goods are anticipated to account expected to generate 15.8% of industry for 7.5% of 2019 industry revenue.
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Products & Markets
Products and Services Specialty stores focusing on home goods Art materials and supplies continued sell kitchenware, cleaning supplies, Art materials and supplies, which include various toiletries and home improvement paint, paintbrushes, knives, canvases, supplies. These products are typically cutting mats and other accessories, are higher quality or niche type products that expected to account for 2.4% of industry differentiate from what consumers sales in 2019. This segment’s share of purchase from big box or department industry revenue is expected to decline stores. Improving consumer sentiment is during the five-year period due to tough helping sales of these products during the competition from online retailers and period, as individuals are more likely to department stores. Nonetheless, the spend on specialty goods for the home. industry has a dedicated core consumer Additionally, improving home base of product users who continue to construction and remodeling markets provide patronage to industry during the period should lead to establishments. Since these artists and consumers buying an increasing variety students require art materials and of home goods. However, this segment supplies as part of their jobs and studies, experiences significant pressure from fluctuations in disposable income and e-commerce, as consumers are consumer confidence are less influential in increasingly likely to shop online for determining this segment’s performance. various niche products. The segment is reliant on shoppers deriving value from Other the in-store experience. The industry includes a large number of small retailers that sell a wide variety of Groceries and alcoholic beverages products; thus, industry revenue An estimated 4.2% of industry revenue generated by other products is quite is accounted for by sales of groceries large. In 2019, 22.0% of total revenue is and alcohol in 2019. Consumers tend to expected to come from retailers of do shopping at larger establishments calendars, candles, emergency for groceries, however, purchases are preparedness equipment, flags and typically made in small stores to avoid banners, artificial flowers, fireworks and long lines or to find specialty products. all other products not included in other Additionally, per capita consumption of segments. One shared characteristic of alcohol is increasing. As with other the products in this segment is their specialty goods, this segment is reliant discretionary quality, directly tying the on the overall economy, when performance of this segment to changes consumers feel confident, they are more in consumer spending. Consumer likely to forego bulk discounts from spending is increasing during the period, large grocers that rely on volume and which aids sales of these products. purchase specialty products. Changing Although, stores that specialize in these consumer preferences have also aided items are typically small, making it this segment, as US consumers are difficult to get exposure to consumers increasingly interested in organic or when large e-commerce sites are so specialty grocery items. readily available.
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Products & Markets
Demand The Small Specialty Retail Stores the first half of the next five years as Determinants industry incorporates a range of consumers feel the strain of political operators that retail a wide variety of uncertainty and the persistence of goods, all of which are affected by unique below average GDP growth. trends of their own, along with the broad Social perception and trends have a economic trends that affect discretionary significant effect on demand for tobacco purchases in general. Most industry products, the industry’s largest product products are considered discretionary or segment. Increasing public awareness nonessential, so the level of disposable about the health dangers of smoking income experienced by consumers fueled a decline in the number of generally determines spending at small smokers during the past few decades. specialty retail stores. Furthermore, According to data from the Centers for higher discretionary income enables Disease Control and Prevention, the consumers to freely spend on higher- percentage of adult smokers declined quality goods, which are often retailed by from 20.9% to 15.5% in 2016, a trend that this industry. Discretionary spending has is anticipated to continue (latest available been on the rise during the period. The data). This decline has negatively affected United States is experiencing a prolonged demand for all tobacco products. More period of slow growth. As a result, recently, the percentage of smokers has consumers are increasingly willing to continued to decrease, but at a slower make expenditures on specialty goods. rate, resulting in relatively steady but still However, as interest rates increase and declining demand for tobacco. Shifting consumers become weary of the slow consumer sentiments about other growth, this is expected to drag on products also drive demand. For many discretionary spending patterns. operators, they are able to maintain Consumer confidence also drives competitiveness by providing a retail industry demand. Movements in environment that caters to consumer consumer confidence take into account preferences like luxury imports or household finances, business organic goods. conditions, unemployment, inflation, External competition from department interest rates, income and government stores, warehouse clubs and e-commerce economic policy. When consumer websites unfavorably affect industry perceptions of the economy are demand. Comparable items offered at positive, consumers spend more freely lower prices from external competitors on discretionary items, including shift consumer spending away from industry products. Perceptions of the industry operators. Over the five years to economy have since been improving, 2019, competition has heightened, consumers have remained cautious hurting industry revenue. The breadth of with their spending in some respects. goods available online forces industry Since 2014, consumer confidence has operators to compete on experience. experienced strong growth in line with Store layout, design and location help declining unemployment and the companies provide a shopping experience improving economy. However, starting that can help limit the effects of price in 2019, it is expected to decline over competition with large retailers.
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Products & Markets
Major Markets Major market segmentation (2019)
4.6% Consumers aged 24 and younger 15.3% Businesses 31.2% Consumers aged 45 to 64
22.6% Consumers aged 25 to 44 26.3% Consumers aged 65 and older
Total $38.6bn SOURCE: WWW.IBISWORLD.COM
Based on US Census Bureau data and nonsmokers. Although under age tobacco IBISWorld research, businesses are use, especially of non-cigarette estimated to account for 15.3% of the alternatives exists, they are not counted industry’s total market in 2019. These as purchases. buyers purchase occupational supplies, such as nurse scrubs and janitorial Consumers aged 25 to 44 equipment, from industry operators for This age range is anticipated to account business use. The remaining 84.7% of the for 22.6% of demand for industry market represents households and products. Consumers in this age group individual buyers, who purchase products are typically employed and have steady for personal use. As consumer confidence income streams, enabling them to spend and disposable income improved, freely on industry items. In addition, this consumers are expected to have group includes cigarette smokers and increased their consumption across the other tobacco users, who consistently retail sector. purchase products despite price changes. As disposable income Consumers aged 24 and younger continues to improve over the five years Consumers 24 and younger are expected to 2024, this segment’s share of revenue to make up 4.6% of total sales. A majority is expected to increase. of this segment’s consumers are teenagers and young adults who have Consumers aged 45 to 64 limited disposable income; therefore, this Individuals between the ages of 45 to 64 segment’s share of revenue is expected to are estimated to account for 31.2% of the remain flat over the five years to 2019. market in 2019. Since consumers in this Home goods and funerary monuments group generally have sufficient are not typically demanded by consumers disposable income, they are able to in this age range. This group will only spend on both inexpensive items and spend money on necessary items, such as more costly items, such as hard-to-find art supplies for school, or inexpensive collectibles and antiques. As consumers merchandise, such as souvenirs or in this segment decrease expenses on novelties. Additionally, this segment children that have moved out of the includes a significant amount on home, they have greater time and income
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Products & Markets
Major Markets to purchase goods from this industry’s than 10.0% according to the CDC, they continued operators, thereby increasing their are more likely to frequent small shops share of revenue during the five-year for various goods. This segment is period. Although, individuals in this limited to an extent by diminished range smoke at a lower rate than the income, but retirement age consumers 25 to 44 age demographics. have more time to spend at small shops. Additionally, this age range is Consumers aged 65 and older less likely to make use of e-commerce In 2019, consumers aged 65 and older sites, preferring brick and motor are expected to generate 26.3% of locations. Moreover, this is age range industry revenue. Although these has grown in number as the baby consumers only smoke at a rate of less boomer generation enters this cohort.
International Trade Since merchandise trade figures are that are sourced to foreign suppliers, classified to the relevant upstream including cigars and cigarettes (Cigarette production industries, small specialty and Tobacco Manufacturing industry, retail stores do not engage in IBISWorld report 31222), art supplies international trade. However, the (Art and Office Supply Manufacturing industry retails a wide range of products industry, 33994) and collectible items.
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Products & Markets
Business Locations 2019
est AK 0.3 e a d
ME reat M d 0.6 akes t a t c 1 2 NY 3 WA ND 5.0 4 MT 0.2 5 3.2 0.4 MN 1.8 WI ock 1.5 MI PA 6 SDP a s 4.4 4.7 OR 0.4 7 1.8 Mou ta s ID IA OH 9 8 0.7 WY 0.9 3.5 0.2 IN VA NE IL 2.4 WV 0.6 3.7 0.7 2.5 KY est NV 1.7 1.3 NC UT MO 2.8 0.9 CO KS 2.1 2.3 0.9 TN 2.4 SC CA 1.5 9.8 OK AR out east 1.6 1.2 GA AL 2.2 AZ MS 1.2 2.3 NM 1.0 0.7 out est LA TX 1.4 FL 6.8 8.6
est Establishments (%) HI Less than 3% 0.3 Additional States (as marked on map) 3% to less than 10% 1 VT 2 NH 3 MA 4 RI 10% to less than 20% 0.2 0.7 1.9 0.3 20% or more 5 CT 6 NJ 7 DE 8 MD 9 DC 1.0 2.0 0.5 1.3 0.1
SOURCE: WWW.IBISWORLD.COM
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Products & Markets
Like most retail industries in the United Business Locations Distribution of establishments vs. population States, the geographical spread of the Small Specialty Retail Stores industry’s 30 establishments closely reflects the distribution of the nation’s population.
Generally, the greater the number of 20 residents in a region, the stronger
demand for various specialty store % products. Since most industry players are 10 small-scale operations, they cater to their immediate local markets. In 2019, IBISWorld expects that industry 0 establishments will be concentrated in West the Southeast, West, Great Lakes and Plains Southeast Mid-Atlantic, which have high shares of Southwest Great Lakes Mid-Atlantic the US population. New England
Based on US Census Bureau data and Establishments Rocky Mountains IBISWorld estimates, the Southeast is Population expected to account for the highest share SOURCE: WWW.IBISWORLD.COM of industry establishments 26.9% of industry establishments in 2019 and 2019. This region accounts for 15.2% of 25.7% of the population. Within the the overall US population. New York, southeastern region, Florida, which the main hub of the Mid-Atlantic region, accounts for 6.4% of the US population, is expected to account for 5.0% of is expected to contain 8.6% of total industry establishments in 2019. industry establishments. Additionally, Pennsylvania is estimated Following the Southeast, the West is to account for 4.7% of operators, driven expected to account for the second- by a significant level of small specialty highest share of industry establishments, retailers in rural regions. with 16.6% in 2019. Population The Southwest region is expected to projections indicate that this region will contain 11.4% of establishments in 2019, also account for the second-largest share with an estimated 12.6% of the of the nation’s population with 17.3%. population. Additionally, the Plains, New California, which accounts for 12.1% of England and Rocky Mountain regions are the total US population, is expected to anticipated to account for 6.9%, 4.5% and account for the highest number of 4.5% of establishments, respectively. The industry establishments in any state, with lower proportion in these regions is 9.8% of operators. mostly driven by population and not The Great Lakes region is expected to consumer sentiments. account for 15.5% of industry While population concentration is establishments. This region is home to important, a large number of qualitative 14.5% of the population, but is also home factors also affect the geographic spread to a large amount of small businesses of establishments. Local trends, tourism focused on local specialty items. appeal and various word of mouth The Mid-Atlantic region is expected to advertising can prop up industry account for 13.6% of establishments in participants in region.
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 21 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Market Share The Small Specialty Retail Stores department stores and online retailers Concentration industry exhibits low market share are increasingly providing convenient concentration. IBISWorld estimates that shopping experiences and low prices to the four largest players in the industry consumers who have traditionally Level will account for an estimated less than shopped at specialty stores. As a result, Concentration in 10.0% of revenue in 2019, with no many industry operators have lost this industry is Low retailer accounting for more than 2.5%. business to these competitors. This trend The industry is highly fragmented, will likely continue to cause characterized by a large number of small underperforming operators to players that are privately owned and consolidate or exit the industry operated. In 2019, just over 67.0% of completely. As a result, the few larger enterprises have fewer than five operators in the industry will gain market employees, while less than 3.0% of share. Large operators are able to benefit enterprises are estimated to employ more from economies of scale, which enable than 20 workers. them to remain viable in competition While industry concentration has with other retail formats. Moreover, large remained relatively stable over the past specialty retailers like Yankee Candle and five years, it is likely going to increase Williams Sonoma are part of a larger due to rising external competition. corporate structure and have the capital External competitors, such as mass necessary to expand their footprint merchandisers, warehouse clubs, despite waning demand for the industry.
Key Success Factors Ability to control stock on hand good shelf management, with Operators should ensure that sufficient products clearly presented to grab stock levels are maintained at all times by customers’ attention. IBISWorld identifies reordering popular items and dispensing 250 Key Success of low-selling merchandise. Effective product promotion Factors for a Effective advertising and marketing business. The most Access to niche markets initiatives will generate extra revenue for important for this Having access to niche markets will help industry operators. shield operators from external industry are: competition, particularly from warehouse Experienced workforce clubs and large-format retailers. Successful operators employ workers who are friendly and knowledgeable Attractive product presentation about specialized products offered, which Industry stores should have differentiates the shopping experience effective layout and design, as well as from that of larger stores.
Cost Structure Cost structure benchmarks are based off Wages Benchmarks the average industry operator. Therefore, Employee compensation, including payroll they may vary based on the size and and benefits, accounts for an expected scope of a specific company. 13.0% of industry revenue and is the second-
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Competitive Landscape
Cost Structure largest expense for the industry. Most industry revenue. This is typical for the Benchmarks industry players are small, and they heavily retail sector because stores must keep a continued rely on employees for daily operations. large volume of inventory on hand to These activities include stocking shelves, meet consumer demand. Inventory items cashiering, organizing store displays and are purchased from a large number of other customer service tasks. Customer wholesalers, generally without long-term service is especially important to this contracts. Over the five years to 2019, industry as it retails specialized items that purchase costs have slightly diminished, often require employees to answer product- with strong competition and increased specific questions. However, this industry’s penetration of low-cost imports reducing wage costs are not especially high because of the prices of inventory goods. its many owner-operator stores. Over the five years to 2019, wage expenses have Profit increased as a share of revenue from 12.3% Profit is measured as earnings before in 2014. This increase is generally interest and taxes. Profit margins vary attributable to recent increases in among specialty retailers, since these employment from larger operators, as they stores sell a wide range of products that try to grow their market share. have different purchase costs and selling prices. Over the five years to 2019, profit Purchases margins have increased slightly. Purchase costs are expected to remain Competition from mass merchandisers, the largest expense for the industry, discount retailers and e-commerce accounting for an expected 62.6% of websites hampered average industry
Sector vs. Industry Costs
Average Costs of all Industries in Industry Costs sector (2019) (2019) 100 3.3 5.2 n P r o fi t 8.9 n Wages 13.0 n Purchases 80 n Depreciation n Marketing n Rent & Utilities n Other 60 69.7 62.6
40 Percentage of revenue Percentage
20 0.9 1.5 0.9 2.1 4.0 7.1 11.7 9.1 0 SOURCE: WWW.IBISWORLD.COM
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Competitive Landscape
Cost Structure profitability for several years. By offering themselves apart from department stores Benchmarks comparable industry products at lower and warehouse clubs, and to increase continued prices, large retailers have attracted store traffic. IBISWorld estimates that consumers that have traditionally shopped advertising expenditure alone accounts at small specialty shops. However, most for 2.1% of revenue in 2019. industry operators are able to focus on providing added value though shopping Rent experience. Although, this is not available Rent costs for this industry are expected to to all specialty retailers. The operators that account for 5.7% of total industry revenue cannot efficiently provide a value-added in 2019. This cost largely covers leases paid retail experience, must lower prices while on store premises along with any additional maintaining a brick and mortar location, expenditure for the use of rented thereby limiting profitability. IBISWorld equipment or machinery. To maximize foot estimates that industry profit has increased traffic, stores must be located in prime real slightly from 4.1% in 2014 to 5.2% of estate spots, leading to high rent costs. revenue in 2019. Utilities Depreciation The cost of utilities for commercial end Depreciation is very low, accounting for users has decreased slightly during the an estimate 0.9% of industry revenue in period according to the Energy 2019, as most operators rent their Information Administration. This change, establishments thereby reducing their albeit small, acts to alleviate some cost depreciable asset size. pressure on small retailers. Utilities are anticipated to account for 1.4% in 2019, a Marketing decline from 1.5% in 2014. Marketing and advertising have become increasingly important as external Other competition has grown over the past five Operators incur a variety of other costs, years. Store owners have actively engaged such as general administrative costs and in advertising through in-store insurance costs. All other costs are promotions, mail and newspaper inserts, estimated to account for the remaining direct mailing and e-mail programs to set 9.0% of total revenue.
Basis of Competition Internal competition same products. Since most products Due to the wide range of industry offered by the industry are discretionary Level & Trend products, only a moderate level of and specialized, consumers tend to shop competition exists among industry around in search of bargains and unique Competition in this operators. Most industry retailers cannot items. Therefore, operators are subject to industry is High and compete against one another because price competition. In addition, customer the trend is Steady they retail entirely different merchandise. service is an important basis of Tobacco shops and candle stores may competition among operators, since both retail lighters and matches, but they industry products often require are not natural competitors. Therefore, specialized and specific knowledge. these operators do not compete directly Consumers are more likely to shop at with one another. stores where they are confident that they However, a high level of competition will receive informative advice from does exist between operators that sell the employees. Beyond customer service,
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Competitive Landscape
Basis of Competition stores compete on customer experience. However, small specialty retail stores continued Consumers are more likely to become can differentiate themselves through return customers after an enjoyable quality and range of products offered experience, and the stores are more likely because external competitors typically to gain vital word of mouth exposure. only carry low to moderate quality goods in a limited range. Therefore, industry External competition operators can appeal to consumers by This industry encounters a high level of featuring a wide selection of high-quality competition from operators in other products with a tailored customer industries, such as warehouse clubs, experience in mind. Additionally, discount department stores and online specialty stores contend with retailers. These competitors are able to competition from online platforms that use economies of scale to maximize cost sell the same variety of products. Online savings by purchasing large volumes of shopping makes it easy for consumers to inventory at once, enabling them to offer shop around for the lowest price on the heavily discounted products to consumers. same products offered in-store, making As a result, specialty stores have it an attractive and convenient experienced increased pressure to lower alternative. As e-commerce sales their product markups and absorb the continue to increase, operators will associated losses in an attempt to match experience mounting competition from the lower prices of mass merchandisers. these sites.
Barriers to Entry The Small Specialty Retail Stores industry exhibits minimal barriers to Barriers to Entry checklist Level & Trend entry, with low establishment costs and Competition High no significant licensing requirements. Barriers to Entry Concentration Low However, industry competition and in this industry are Life Cycle Stage Decline market awareness can pose a barrier to Capital Intensity Low Low and Steady potential new entrants. Most industry Technology Change Low operators are small to midsize Regulation and Policy Light establishments that cater to a local or Industry Assistance Low
regional community. Therefore, there is little need to invest heavily in technology, SOURCE: WWW.IBISWORLD.COM such as computerized inventory controls or point-of-sale systems. High competition, while not a formal Most small specialty retailers do not barrier to entry, may prevent potential have prohibitive license requirements, new businesses from entering the except regarding sales of tobacco products industry. With external competitors, such and alcohol. Even so, tobacco retail licenses as department stores and warehouse are relatively easy to obtain through state clubs, increasingly siphoning sales from governments. In New York, where tobacco small specialty stores, industry margins is highly regulated, two-year retail licenses have been constrained. New entrants only cost $85 or $110 depending on without an established presence in the application dates. Despite low profit local community may find it difficult to margins, the industry is estimated to have remain profitable. Therefore, the main 141,850 enterprises in 2019 because there deterrent to entry is profit anticipation. are few barriers to entry. Renting a store front may require
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Competitive Landscape
Barriers to Entry relatively low investment, but low continued expectations of profit margin on limited revenue can expose new owner-operator entrants to significant risk.
Industry The Small Specialty Retail Stores industry generated from domestic operations on a Globalization has a low level of globalization. The local or regional basis. Similarly, trade is majority of industry operators are small to not a factor for this industry. International midsize businesses, and they lack the trade of specialty retail store merchandise Level & Trend resources to operate globally. As a result, is accounted for in their respective Globalization in this most revenue from these stores is upstream production industries. industry is Low and the trend is Steady
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Other Companies The Small Specialty Retail Stores dominate the industry because they can industry is characterized by many small successfully supply local or regional operators that retail a wide range of demand. Although tobacco and tobacco products, with no single player capturing products account for more than one- more than 5.0% of total revenue. third of industry revenue, there are no Nonemployers (stores without any hired tobacco-focused specialty stores that employees) account for an estimated contribute a significant portion to 78.3% of enterprises in 2019 and industry revenue.
Other Company Leslie’s Poolmart Inc. (Leslie’s), more In 2017, L Catterton, a consumer- Performance commonly known as Leslie’s Swimming focused private equity firm and affiliate of Pool Supplies, began in the backyard shed of GIC, acquired Leslie’s for an undisclosed Leslie’s Poolmart a North Hollywood, CA, home in 1963. amount. IBISWorld expects that Today, the company operates more than Leslie’s will generate revenue of $834.8 Inc. 950 retail stores, mostly in locations with million in 2019, continuing to grow Market Share: 2.2% substantial fair-weather seasons. Leslie’s organically and through acquisitions. sells pool supplies such as chemicals, For example, in January 2018, Leslie’s cleaning devices, equipment, parts and acquired Valley Pool Sales. Through the recreation and safety products, acquisition of the Greater Pittsburgh supplemented in part by backyard and patio based company, Leslie’s took over the furniture and decor. Similar to many small operation of six stores, ecommerce specialty retailers, Leslie’s offers customer operations and warehouse and service expertise that includes on-site corporate facilities. However, revenue professional equipment installation and growth is limited by competition from repair, in addition to free in-store water large stores and e-commerce. Leslie’s is analysis and pool school seminars. Leslie’s able to compete due to its brand also offers a best-price guarantee to stem recognition and value-added services, competition. The company is headquartered but larger retailers put significant price in Phoenix and employs more than 3,500 pressure on what tend to be highly people during the peak summer season. commoditized products.
Other Company Established in 1978 in Dallas, The majority of the company’s stocks. The Performance Container Store Group Inc. (The company went public in November 2013. Container Store) is a specialty retail chain The Container Store has dominated The Container Store that sells storage supplies for the home the niche storage product market, with and office. Its 90 stores in 32 states and sales growing at an estimated annualized Group Inc. the District of Columbia sell more than rate of 3.0% over the five years to 2019. Market Share: 2.2% 10,000 organizational and storage More than 90.0% of the company’s products, including storage bins, laundry revenue is specific to the retail portion of hampers, trash cans and travel luggage. sales, which specializes in container In 2007, Leonard Green & Partners, a products. The company has gained wide private equity firm that also holds a popularity by offering quality products majority stake in large retailers such as and focusing on customer service. In David’s Bridal and Petco, took ownership addition, The Container Store has gained of The Container Store by purchasing the a favorable brand image by turning its
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Major Companies
Other Company efforts to recruiting and retaining a Despite slumping industry revenue, the Performance high-quality workforce. IBISWorld company has taken advantage of its continued estimates that The Container Store will relative size and favorable customer generate $851.8 million in sales in 2019. relationships to improve sales figures.
Other Company Established in 1969 and based in South segment revenue is expected to reach Performance Deerfield, MA, The Yankee Candle $651.5 million in 2019. A large increase Company Inc. (Yankee Candle) is the in competition from department stores, The Yankee Candle largest specialty-brand candle company which frequently offer similar products in the United States. The company at lower prices, contributed to sales Company Inc. designs, manufactures, distributes and declines. Nonetheless, the company has Market Share: 1.7% retails its own premium candles under been actively fighting against declining the Yankee Candle brand. In 2013, in-store retail demand through a consumer products company Jarden variety of measures, such as location Corporation acquired Yankee Candle expansion. The company also entered for $1.8 billion. In December 2015, into a partnership with 1-800-Flowers Jarden Corporation was acquired by to boost additional sales and actively Newell Brands for $13.2 billion in cash introduced new products (e.g. and stock. QuickScent) to expand its customer While Yankee Candle has operations base. Yankee Candle’s retail segment is that span the entire supply chain, only exhibiting an annualized growth of the retail operations of its more than 475 5.0%, as an expanding operational scale company-owned stores are relevant to helps boost revenue in an increasingly this industry. The company’s retail- competitive market.
Other Company Williams-Sonoma is the flagship brand of providing specialty home goods to Performance parent company Williams-Sonoma Inc., consumers seeking products which includes Pottery Barn, Pottery unavailable at large outlets. Barn Kids, West Elm, PB Teen, In-store retail sales of Williams- Williams-Sonoma Rejuvenation and Mark and Graham. Sonoma locations are estimated to reach Market Share: 1.2% Established in 1956 in Sonoma, CA, $472.6 million in 2019. Although the the company has grown into a large overall company has grown, the retail multibrand corporation, with total portion of Williams-Sonoma has not company revenue reaching $5.7 billion fared well due to competition from large in 2018 (latest data available). Since e-commerce sites. Online retailers like its founding, the Williams-Sonoma line Wayfair Inc. have put pressure on the of retail stores has focused on company’s revenue streams.
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Capital Intensity The Small Specialty Retail Stores industry has a low level of capital Capital Intensity intensity. IBISWorld estimates that for Capital units per labor unit Level every dollar spent on wages, industry 0.5 The level of capital operators will spend $0.07 in capital intensity is Low investment in 2019. Capital investment is 0.4 mainly in fixtures and fittings, cash 0.3 registers, point-of-sale systems and storage units. Additionally, some niche 0.2 retailers, such as swimming pool supplies 0.1 stores, provide in-store repairs that 0.0 require the purchase of specialized Economy Retail Trade Small Specialty equipment. Over the five years to 2019, Retail Stores
capital intensity remained relatively Dotted line shows a high level of capital intensity constant. Capital investment for larger SOURCE: WWW.IBISWORLD.COM operators increases in accordance with larger stores and greater inventory operators that make up the storage and tracking necessary to overwhelming majority of companies, accommodate volume. However, smaller have very low capital costs. Despite their
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Operating Conditions
Capital Intensity lower costs, these retailers have increased capital costs, which can vary from continued their purchases of displays and renovations year-to-year, labor costs are a consistent to provide a better customer experience. annual expenditure incurred by industry Small industry operators rely heavily players. The overall capital intensity of on human labor for daily operations. the industry is expected to decline only Employee duties essential to the success slightly over the next five years and of a specialty store include customer IBISWorld anticipates that the industry service, maintaining store displays and will continue to experience a low level of processing consumer purchases. Unlike capital intensity through 2024.
Technology and Technology that specifically pertains to business. Additionally, the growing Systems the Small Specialty Retail Stores industry simplicity and effectiveness of credit and has changed little during the current debit card readers from companies like Level period. However, some operators in this Square have enabled small retailers to industry have benefited from move past cash-based operations. This The level of technological advances that affect the adds to convenience in an industry technology general retail sector, including computer struggling to give shoppers a reason not to change is Low scanning cash registers and electronic bypass them for larger retailers. data interchange. The implementation of Advances in technology have also these advances has enabled industry altered the way consumers shop for retailers to control and record industry goods. In recent years, merchandising, distribution, sales and e-commerce, has expanded significantly, stock markdowns via point of sale and many operators recognize that they systems. Additionally, radio frequency need to offer some form of online identification (RFID) provides real-time presence to remain competitive. As a information on inventory, helps reduce result, the industry’s larger players have shrinkage problems and improves established their own websites to sell efficiency. These products have been their products. However, these sales are widely used for more than a decade. not included as part of industry revenue. However, the declining costs of RFID So, as operators attempt to increase their systems enable smaller industry operators online presence this tends to hurt to implement this technology in their industry-relevant revenue.
Revenue Volatility Due to the discretionary nature of However, improvement in consumer products sold in the Small Specialty confidence and spending are aiding Retail Stores industry, revenue is revenue. Overall, the industry has Level influenced by variations in the level of exhibited moderate revenue volatility The level of volatility real disposable income. A rise in per during the five-year period, increasing as is Medium capita disposable income increases the much as 7.1% in 2015 and declining as propensity of consumers to purchase much as 4.2% in 2019. While revenue has industry products, causing sales to grow. declines, these declines have been fairly Over the five years to 2019, industry stable during the period as consumers revenue has been driven down by intense increase spending but are flocking to competition from other retail outlets. other retail markets.
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Operating Conditions
Revenue Volatility continued
Regulation and Policy Regulations relevant to tobacco retailers children. Furthermore, the Family are generally covered by individual Smoking Prevention and Tobacco Control states. Retailers need to apply for and Act outlines several restrictions on Level & Trend obtain state tobacco licenses to sell cigarettes and smokeless tobacco product The level of cigarettes, cigars or any other tobacco advertising, as well as grants the Food Regulation is Light products. On a federal level, the US and Drug Administration (FDA) to and the trend Alcohol and Tobacco Tax and Trade impose additional restrictions. While is Increasing Bureau (TTB), under the Department of these do not directly affect the Small the Treasury, aims to ensure the Specialty Retail Stores industry, they do collection of tobacco federal excise taxes affect consumers of tobacco products. and to qualify applicants for permits to In 2016, the FDA established new import tobacco products or to operate regulations deeming all tobacco products tobacco export warehouses. The TTB also to be subject to the Federal Food, Drug undertakes tobacco inspections to verify and Cosmetic Act. Consequently, an applicant’s qualification information, hookahs, pipe tobacco, e-cigarettes, check the security of the premises and dissolvable tobacco products and cigars ensure tax compliance. Excise taxes are are now under the purview of FDA increasing during the period. regulations previously only applied to The Federal Trade Commission cigarettes and smokeless tobacco. This enforces the Surgeon General’s warning will affect a large swath of specialty on certain tobacco products. There are retailers that are typically focused on also laws regulating the age of individuals non-cigarette tobacco products. who can purchase, use, possess or sell Additionally, in 2019, the FDA tobacco products, as well as regulations announced new restrictions on the sale of regarding smoking in public places. The flavored e-cigarettes and proposed a ban Centers for Disease Control and of menthol cigarettes and flavored cigars. Prevention describes several these regulations, such as smoking bans on Other regulations domestic flights and smoking at locations Individual states generally maintain that provide federally funded services to specific industry-relevant regulations.
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Operating Conditions
Regulation and Policy Some states have enacted their own of the Americans with Disabilities Act of continued antitrust laws to ensure that the general 1990, as amended, which requires stores public is provided with the best product to be accessible to customers with prices, quality and choice. Companies disabilities and protects those with must comply with the Fair Labor disabilities from discrimination. Recent Standards Act, which establishes a trends toward increasing state level minimum wage, overtime and other minimum wages are expected to pose a working conditions. Additionally, store threat to small operators that rely on low owners must comply with the provisions wage labor to run specialty stores.
Industry Assistance The Small Specialty Retail Stores which can be passed onto the industry does not receive any specific consumer, enabling retailers to remain government assistance. Tariff rates, price-competitive. Level & Trend however, do apply to certain products The industry does receive some The level of that the industry retails, as companies indirect assistance from various industry Industry Assistance sell a range of unrelated products. associations. For example, the National is Low and the Nevertheless, this factor does not Retail Federation works to strengthen trend is Steady pertain directly to the retail level retail communities, as well as provide because operators purchase goods from career support for employees. importers and wholesalers after the Additionally, the tobacco industry has tariff has been applied. However, immense lobbying and association changes in tariff rates can alter the power. This is less robust at the retail sources and prices of industry goods. level, but the Cigar Association and the For instance, a decline in tariff rates National Association of Tobacco Outlets will result in falling purchase costs, work on retailer’s behalf.
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 32 Key Statistics
Industry Data Industry E-commerce Revenue Value Added Establish- Wages Domestic sales ($m) ($m) ments Enterprises Employment Exports Imports ($m) Demand ($b) 2010 32,440.8 5,156.6 134,223 129,729 215,522 -- -- 3,759.0 N/A 169.9 2011 34,256.2 5,478.2 137,035 132,554 219,680 -- -- 3,814.5 N/A 199.7 2012 33,513.3 5,351.8 139,284 134,620 219,085 -- -- 3,679.6 N/A 230.5 2013 32,986.3 5,513.6 138,770 134,104 224,021 -- -- 3,837.4 N/A 261.0 2014 32,932.6 5,694.3 140,578 135,888 231,795 -- -- 4,057.2 N/A 298.7 2015 35,263.0 6,531.8 142,606 138,005 243,530 -- -- 4,489.3 N/A 340.4 2016 36,919.7 6,963.6 141,295 135,791 251,293 -- -- 4,783.2 N/A 393.9 2017 38,461.5 7,360.6 144,592 138,933 260,471 -- -- 4,950.0 N/A 452.1 2018 40,352.3 7,679.3 148,806 142,955 272,294 -- -- 5,164.1 N/A 509.9 2019 38,641.5 7,397.3 147,347 141,850 266,539 -- -- 5,032.9 N/A 567.3 2020 37,087.2 7,156.9 145,699 140,531 261,037 -- -- 4,909.3 N/A 620.4 2021 35,893.2 6,968.8 144,444 139,538 256,718 -- -- 4,812.8 N/A 666.6 2022 35,399.1 6,893.0 143,997 139,204 255,217 -- -- 4,777.0 N/A 704.9 2023 34,750.7 6,782.8 143,073 138,419 252,447 -- -- 4,718.0 N/A 761.0 2024 33,983.2 6,651.9 141,973 137,500 248,763 -- -- 4,642.1 N/A 833.0 Sector Rank 25/63 22/63 4/63 4/63 19/63 N/A N/A 21/63 N/A N/A Economy Rank 257/694 311/694 51/694 52/694 130/694 N/A N/A 280/694 N/A N/A
Annual Change Industry Establish- Domestic E-commerce Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand sales (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2011 5.6 6.2 2.1 2.2 1.9 N/A N/A 1.5 N/A 17.5 2012 -2.2 -2.3 1.6 1.6 -0.3 N/A N/A -3.5 N/A 15.4 2013 -1.6 3.0 -0.4 -0.4 2.3 N/A N/A 4.3 N/A 13.2 2014 -0.2 3.3 1.3 1.3 3.5 N/A N/A 5.7 N/A 14.4 2015 7.1 14.7 1.4 1.6 5.1 N/A N/A 10.7 N/A 14.0 2016 4.7 6.6 -0.9 -1.6 3.2 N/A N/A 6.5 N/A 15.7 2017 4.2 5.7 2.3 2.3 3.7 N/A N/A 3.5 N/A 14.8 2018 4.9 4.3 2.9 2.9 4.5 N/A N/A 4.3 N/A 12.8 2019 -4.2 -3.7 -1.0 -0.8 -2.1 N/A N/A -2.5 N/A 11.3 2020 -4.0 -3.2 -1.1 -0.9 -2.1 N/A N/A -2.5 N/A 9.4 2021 -3.2 -2.6 -0.9 -0.7 -1.7 N/A N/A -2.0 N/A 7.4 2022 -1.4 -1.1 -0.3 -0.2 -0.6 N/A N/A -0.7 N/A 5.7 2023 -1.8 -1.6 -0.6 -0.6 -1.1 N/A N/A -1.2 N/A 8.0 2024 -2.2 -1.9 -0.8 -0.7 -1.5 N/A N/A -1.6 N/A 9.5 Sector Rank 59/63 58/63 51/63 50/63 53/63 N/A N/A 56/63 N/A N/A Economy Rank 675/694 658/694 581/694 566/694 645/694 N/A N/A 657/694 N/A N/A
Key Ratios Imports/ Exports/ Revenue per Share of the IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2010 15.90 N/A N/A 150.52 11.59 1.61 17,441.37 0.03 2011 15.99 N/A N/A 155.94 11.14 1.60 17,363.89 0.03 2012 15.97 N/A N/A 152.97 10.98 1.57 16,795.31 0.03 2013 16.71 N/A N/A 147.25 11.63 1.61 17,129.64 0.03 2014 17.29 N/A N/A 142.08 12.32 1.65 17,503.40 0.03 2015 18.52 N/A N/A 144.80 12.73 1.71 18,434.28 0.04 2016 18.86 N/A N/A 146.92 12.96 1.78 19,034.35 0.04 2017 19.14 N/A N/A 147.66 12.87 1.80 19,004.03 0.04 2018 19.03 N/A N/A 148.19 12.80 1.83 18,965.16 0.04 2019 19.14 N/A N/A 144.98 13.02 1.81 18,882.41 0.04 2020 19.30 N/A N/A 142.08 13.24 1.79 18,806.91 0.04 2021 19.42 N/A N/A 139.82 13.41 1.78 18,747.42 0.04 2022 19.47 N/A N/A 138.70 13.49 1.77 18,717.41 0.03 2023 19.52 N/A N/A 137.66 13.58 1.76 18,689.07 0.03 2024 19.57 N/A N/A 136.61 13.66 1.75 18,660.73 0.03 Sector Rank 22/63 N/A N/A 43/63 25/63 60/63 44/63 22/63 Economy Rank 517/694 N/A N/A 508/694 434/694 630/694 630/694 311/694
Figures are in inflation-adjusted 2019 dollars. Rank refers to 2019 data. SOURCE: WWW.IBISWORLD.COM Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 33
Industry Financial Ratios Apr 2017 - Mar 2018 by company revenue Apr 2014 - Apr 2015 - Apr 2016 - Apr 2017 - Small Medium Large Mar 2015 Mar 2016 Mar 2017 Mar 2018 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios Current Ratio 1.8 1.8 1.7 1.8 2.1 1.5 1.3 Quick Ratio 0.6 0.5 0.6 0.6 0.7 0.5 0.5 Sales / Receivables (Trade Receivables Turnover) 68.7 119.9 60.5 57.0 141.2 32.7 20.5 Days’ Receivables 5.3 3.0 6.0 6.4 2.6 11.2 17.8 Cost of Sales / Inventory (Inventory Turnover) 5.2 5.0 4.6 4.3 4.3 4.7 4.3 Days’ Inventory 70.2 73.0 79.3 84.9 84.9 77.7 84.9 Cost of Sales / Payables (Payables Turnover) 16.5 19.3 18.8 20.2 29.4 14.0 10.3 Days’ Payables 22.1 18.9 19.4 18.1 12.4 26.1 35.4 Sales / Working Capital 12.1 11.6 11.6 10.8 8.7 18.9 14.8
Coverage Ratios Earnings Before Interest & Taxes (EBIT) / Interest 6.9 6.3 6.1 6.1 6.3 5.0 5.8 Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 3.6 2.6 3.6 4.7 3.2 n/a n/a
Leverage Ratios Fixed Assets / Net Worth 0.4 0.4 0.4 0.4 0.3 0.5 0.8 Debt / Net Worth 1.9 1.6 2.0 1.8 1.8 1.6 2.3 Tangible Net Worth 28.8 28.5 22.8 28.1 28.1 32.0 17.3
Operating Ratios Profit before Taxes / Net Worth, % 33.0 27.1 31.9 26.1 27.0 18.4 25.9 Profit before Taxes / Total Assets, % 10.2 10.8 9.5 9.3 10.4 7.5 10.1 Sales / Net Fixed Assets 38.8 31.6 33.3 33.6 34.8 32.7 19.6 Sales / Total Assets (Asset Turnover) 3.1 3.1 2.7 2.8 2.8 3.0 2.1
Cash Flow & Debt Service Ratios (% of sales) Cash from Trading 37.9 37.8 40.5 38.2 39.9 29.6 36.4 Cash after Operations 4.4 3.3 4.1 3.7 4.5 2.8 6.0 Net Cash after Operations 4.5 3.9 4.4 4.5 4.8 2.8 6.2 Cash after Debt Amortization 1.2 0.8 0.6 0.7 0.7 0.5 2.0 Debt Service P&I Coverage 2.8 2.3 2.8 2.5 2.6 2.8 2.3 Interest Coverage (Operating Cash) 5.7 4.9 6.0 6.2 6.6 5.5 6.1
Assets, % Cash & Equivalents 13.6 12.9 13.2 14.7 17.3 8.9 7.1 Trade Receivables (net) 12.2 10.6 12.1 11.8 9.8 16.9 15.5 Inventory 39.4 42.6 41.2 40.8 41.4 40.4 36.5 All Other Current Assets 4.0 2.0 2.6 2.6 2.5 3.0 2.8 Total Current Assets 69.1 68.1 69.0 69.9 70.9 69.3 61.8 Fixed Assets (net) 17.6 18.2 16.9 17.2 17.1 17.1 18.8 Intangibles (net) 6.4 6.8 7.7 6.4 5.9 6.0 11.9 All Other Non-Current Assets 6.9 6.8 6.4 6.5 6.1 7.5 7.5 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 4,549.1 4,388.8 4,677.1 3,396.3 338.0 779.7 2,278.5
Liabilities, % Notes Payable-Short Term 11.8 11.1 15.4 12.1 11.4 13.9 13.7 Current Maturities L/T/D 2.3 2.4 3.3 2.4 2.5 1.9 2.7 Trade Payables 16.3 16.2 14.6 14.0 12.0 19.5 17.2 Income Taxes Payable 0.1 0.2 0.2 0.2 0.1 0.2 0.2 All Other Current Liabilities 10.7 14.6 13.9 13.5 14.9 11.0 8.2 Total Current Liabilities 41.1 44.4 47.3 42.2 40.8 46.5 42.0 Long Term Debt 15.5 14.1 14.5 17.8 19.9 11.0 18.4 Deferred Taxes 0.2 0.1 0.2 0.1 n/a 0.2 0.1 All Other Non-Current Liabilities 8.0 6.1 7.5 5.5 5.3 4.3 10.2 Net Worth 35.2 35.3 30.5 34.5 34.0 38.0 29.2 Total Liabilities & Net Worth ($m) 4,549.1 4,388.8 4,677.1 3,396.3 338.0 779.7 2,278.5
Maximum Number of Statements Used 453 551 357 365 257 79 29
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 34
Jargon & Glossary
Industry Jargon BIG-BOX STORE A retail store that is differentiated by ELECTRONIC DATA INTERCHANGE The transmission its sheer size and large range of products, including of electronic documents between businesses from one electronics, household goods and other consumer computer system to another. products. HOOKAH Pipe instrument for vaporizing and smoking BRICK-AND-MORTAR STORE A store that has a various tobacco products. physical presence and location, as opposed to an online POINT OF SALE A system used at checkout in retail retailer. stores using computers and cash registers to capture E-CIGARETTE A device that vaporizes tobacco liquids, transaction data at the time and place of sale. to avoid inhaling smoke. E-TAILER A retailer that primarily sells goods and services via the internet. Many of these companies do not have brick-and-mortar locations.
IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that IMPORTS Total value of industry goods and services new companies struggle to enter an industry, while low brought in from foreign countries to be sold in the barriers mean it is easy for new companies to enter an United States. industry. INDUSTRY CONCENTRATION An indicator of the CAPITAL INTENSITY Compares the amount of money dominance of the top four players in an industry. spent on capital (plant, machinery and equipment) with Concentration is considered high if the top players that spent on labor. IBISWorld uses the ratio of account for more than 70% of industry revenue. depreciation to wages as a proxy for capital intensity. Medium is 40% to 70% of industry revenue. Low is less High capital intensity is more than $0.333 of capital to than 40%. $1 of labor; medium is $0.125 to $0.333 of capital to $1 INDUSTRY REVENUE The total sales of industry goods of labor; low is less than $0.125 of capital for every $1 of and services (exclusive of excise and sales tax); subsidies labor. on production; all other operating income from outside CONSTANT PRICES The dollar figures in the Key the firm (such as commission income, repair and service Statistics table, including forecasts, are adjusted for income, and rent, leasing and hiring income); and inflation using the current year (i.e. year published) as capital work done by rental or lease. Receipts from the base year. This removes the impact of changes in interest royalties, dividends and the sale of fixed the purchasing power of the dollar, leaving only the tangible assets are excluded. “real” growth or decline in industry metrics. The inflation INDUSTRY VALUE ADDED (IVA) The market value of adjustments in IBISWorld’s reports are made using the goods and services produced by the industry minus the US Bureau of Economic Analysis’ implicit GDP price cost of goods and services used in production. IVA is deflator. also described as the industry’s contribution to GDP, or DOMESTIC DEMAND Spending on industry goods and profit plus wages and depreciation. services within the United States, regardless of their INTERNATIONAL TRADE The level of international country of origin. It is derived by adding imports to trade is determined by ratios of exports to revenue and industry revenue, and then subtracting exports. imports to domestic demand. For exports/revenue: low is EMPLOYMENT The number of permanent, part-time, less than 5%, medium is 5% to 20%, and high is more temporary and seasonal employees, working proprietors, than 20%. Imports/domestic demand: low is less than partners, managers and executives within the industry. 5%, medium is 5% to 35%, and high is more than ENTERPRISE A division that is separately managed and 35%. keeps management accounts. Each enterprise consists LIFE CYCLE All industries go through periods of growth, of one or more establishments that are under common maturity and decline. IBISWorld determines an ownership or control. industry’s life cycle by considering its growth rate ESTABLISHMENT The smallest type of accounting unit (measured by IVA) compared with GDP; the growth rate within an enterprise, an establishment is a single of the number of establishments; the amount of change physical location where business is conducted or where the industry’s products are undergoing; the rate of services or industrial operations are performed. Multiple technological change; and the level of customer establishments under common control make up an acceptance of industry products and services. enterprise. EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
Provided to: Autobahn Consultants (2134210691) | 27 October 2019 WWW.IBISWORLD.COM Small Specialty Retail Stores in the US July 2019 35
Jargon & Glossary
IBISWorld Glossary NONEMPLOYING ESTABLISHMENT Businesses with WAGES The gross total wages and salaries of all no paid employment or payroll, also known as employees in the industry. The cost of benefits is also continued nonemployers. These are mostly set up by self-employed included in this figure. individuals. PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax. VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
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