Bad news this holiday season: sales growth among private retailers is basically flat this year, according to Sageworks, a financial information company. Privately held retail companies are growing sales at an annual rate of 0.8 percent on average, according to financial statements collected by Sageworks throughout 2013. That’s a significant drop from the 7.4 percent average growth the firm found last year.
A drop of a few percentage points “has never been a real point for concern, but the fact that it has dropped from 7.4 percent to negligible growth is a pretty impactful difference,” says Libby Bierman, analyst at Sageworks.
Sales growth in other industries, such as construction, manufacturing, and wholesale, has declined at a similar rate, says Bierman. But the drop in retail sales growth is the most precipitous. “Sales this year, most recently in the last two quarters, have really started to decrease compared to the growth rates we’ve seen in past years,” she says. “Retail is the slowest growing industry of the sectors.”
Bierman says retailers and other private companies may be seeing sales growth fall because demand is leveling off after jumping post-recession. “Most consumers, or business consumers even, had held off on purchases during the recession because money was tight, because they didn’t have the profit to spare,” Bierman says. “And so after business began as usual, some of those purchases finally took place. I think that those pent up or delayed purchases might have started to wear thin, and any rebound after the recession has probably already taken place.”
Could retailers make up the difference in sales growth during the last month-and-a-half of the year? “They’d have a lot of growth to catch up for, so it’s unlikely,” Bierman says. “I do expect that, as normal, there would be an increase in retail sales during the Christmas season and the holiday season, but we wouldn’t be able to project if that’s going to be anywhere close to getting them to that 7 percent level.”
There is a small silver (tinsel?) lining to the most recent Sageworks numbers, Bierman says. Private companies, including retailers, are increasing their profit margins. Retailers’ net profit margin jumped from an average of 2.9 percent in 2012 to 3.9 percent in 2013. “While they may not be growing significantly, they’re still making money,” she says. “So it’s not that they’re necessarily going to go under.”
But sales have started to decrease among very small retailers, those with annual sales of less than $5 million. “If that continues to happen, it will be more difficult for those small companies to cover their overhead costs,” she says. “You’ll see margins start to wear a lot more thin, which could lead to businesses closing.”
The Thomson Reuters/University of Michigan preliminary consumer sentiment index fell to 72 in November, its lowest point since December 2011.