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Annual Retail TradeMonday, April 24, 2006 > 02:07:19
The following is based on Statistics Canada reports, as quoted by I.E. Canada in their March 27, 2006 e-newsletter.
Retail sales strengthened in 2004, as consumers took advantage of easier credit, growing employment and rising personal disposable income to fix up their homes and buy some new furniture.
Store retailers reported operating revenues of $370.7 billion, a 4.2 per cent increase from 2003. This was a faster pace than the gain of 3.5 per cent in 2003. Retailers were buffeted during 2003 by events such as the SARS outbreak and the power blackout in Ontario.
In 2004, revenues, profit margins and operating profits all rose. There was also a strong housing and renovation market coupled with rising personal disposable income and lower interest rates, both of which drove consumer spending on retail goods.
Revenues rose among all major retail trading groups, except for computer and software stores, where they were off 4.7 per cent.
The strongest growth occurred in stores with direct links to the housing and renovation markets. Revenues for home furnishing stores surged 11.6 per cent, while those for home centres and hardware stores rose 10.2 per cent.
Revenues for gasoline stations surged 10.7 per cent. In 2004, the Consumer Price Index for gasoline increased 10.5 per cent compared to 2003.
Proportionally, of every $100 in total retail operating revenues in 2004, new car dealers accounted for $20, the biggest share, followed by supermarkets at $16, general merchandise stores at $11 and gasoline stations at nearly $10.
Retail Chain Stores Accounted for Two-Fifths of Total Revenue
Retail stores can be divided into two broad categories: chains and independents.
Retail chain stores accounted for just over two-fifths (43 per cent) of total retail operating revenues in 2004, or $159.6 billion. Independent retailers continued to account for the largest share of the retail industry, with about 57 per cent of total operating revenues.
A retail chain is an organization operating four or more retail outlets in the same industry class under the same legal ownership, at any time during the survey year. An independent retailer operates fewer than four locations.
Operating revenue in retail chain stores rose 6.3 per cent over 2003, while gross margins (the difference between total operating revenues and the cost of goods sold) rose 5.6 per cent. Operating revenue among the independents increased 2.7 per cent, with gross margins up 5.3 per cent.
Almost three-quarters (73 per cent) of operating revenues for retail chains came from those in the 27 census metropolitan areas. Gains were stronger in the western centres with revenues rising 9.4 per cent in Calgary and 8.6 per cent in Edmonton. Gains in the three largest urban centres were much slower: Toronto (+4.7 per cent), Montréal (+5.0 per cent) and Vancouver (+4.8 per cent).
Housing and Renovation Markets Spur Sales
As mortgage rates fell and housing starts rose, Canadians leaned more and more toward spending on their homes. This translated into strong sales in stores serving the housing and renovation markets.
Among all retail stores, excluding gasoline stations sales, the strongest gain in operating revenues occurred in home furnishing stores and home centres and hardware stores.
Total operating revenues for these two categories of stores, combined with specialized building materials and garden stores, as well as furniture stores, amounted to $36.4 billion in 2004, or 10.0 per cent of total retail operating revenues.
Miscellaneous store retailers, which include such home related merchandise as hot tubs, whirlpools and swimming pools, saw a healthy 7.9 per cent gain in their operating revenues.
Consumers spent nearly $9.6 billion in home electronics and appliances stores, a 6.1 per cent increase from 2003.
Clothing Retailers Lead in Gross Margins
The gross margin for store retailers (the difference between total operating revenues and the cost of goods sold) increased 5.4 per cent to more than $97.1 billion in 2004.
This level accounted for 26.2 per cent of operating revenues, slightly higher than the proportion of 25.9 per cent in 2003.
Increases in retail gross margins were broad-based. Margins were stable, or fell, in only 7 of the 18 trade groups.
Margins as a percentage of operating revenues varied greatly among the retail trade groups. Among car dealers, the percentage was only 13.3 per cent, the lowest among trade groups. The margin was 47.0 per cent for clothing stores, the highest, followed by 46.8 per cent for shoe, clothing accessories and jewellery stores.
Clothing stores recorded the largest gain in margins among all retail stores, thanks to falling prices and increased sales. Their margin was 2.5 percentage points higher than it was in 2003. The cost of goods sold for clothing retailers fell 2.4 per cent from 2003.
In contrast, despite rising operating revenues, home furnishing stores saw their margins as a percentage of revenues fall 1.9 percentage points to 37.4 per cent, as the cost of goods sold rose 15.1 per cent.
Operating Expenses Under Control
Operating expenses for the retail industry as a whole rose 4.8 per cent to $76.8 billion in 2004. Even so, retailers were able to control expenses relative to revenue.
Operating expenses represented 20.7 per cent of operating revenues in 2004, virtually unchanged from the proportion of 20.6 per cent the year before. Operating profits among store retailers rose 8.1 per cent to $20.3 billion.
The ratio of operating expenses to operating revenues varied widely among the 18 major retail groups, with 13 recording a ratio above the national average.
Among shoe, clothing accessories and jewellery stores, operating expenses represented 40.7 per cent of revenues, while the ratio for miscellaneous store retailers was 35.4 per cent. Each increased 0.7 percentage points from 2003, the largest gain among all groups.
The most notable declines in the ratio occurred among furniture stores, where it fell 1.7 percentage points, and home furnishing stores retailers, who recorded a 1.4 percentage-point decline.
These two groups enjoyed robust revenue growth. Growth in furniture stores offset any rise in expenses, while home furnishing stores (-0.1 per cent) maintained expenses at 2003 levels.
Inventories Rise Among Most Retailers
Overall, store retailers raised their inventory levels 5.5 per cent to $52.7 billion.
Despite the increase, the ratio of inventories to operating revenues remained relatively stable. In 2004, inventories represented 7.0 per cent of revenues, down slightly from 7.1 per cent the year before. (A decline in this ratio is favourable for retailers.)
The increase in retail inventories was broadly based, with only 4 of the 18 groups reporting declines. Computer and software stores reported the largest drop (-9.7 per cent), reflecting a continuing effort by these retailers in 2004 to cut costs and maximize revenues.
Definitions, data sources and methods: survey numbers, including related surveys, 2446 and 2447.
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