Industry Analysis

Industry Analysis

Samir Mohan

Industry Sector & the NAICS 2Digit Code

44-45NAICS 2 Digit Code:

Retail TradeIndustry Sector:

The Sector as a Whole:

The Retail Trade sector comprises establishments engaged in retailing merchandise, generallywithout transformation, and rendering services incidental to the sale of merchandise. The retailingprocess is the final step in the distribution of merchandise; retailers are, therefore, organized to sellmerchandise to the general public.

Store retailers operate fixed point-of-sale locations, located and designed to attract a high volume ofwalk-in customers. In general, retail stores have extensive displays of merchandise and use mass-media advertising to attract customers. They typically sell merchandise to the general public forpersonal or household consumption, but some also serve business and institutional clients.

Source: http://www.naics.com/

Industry Sub-Sector & theNAICS Code

452910NAICS Code:

Warehouse Clubs& Supercenters

Industry Sub-Sector:

This industry comprises establishments known as warehouse clubs,superstores or supercenters primarily engaged in retailing a general line ofgroceries in combination with general lines of new merchandise, such asapparel, furniture, and appliances.

Source: http://www.naics.com/

Warehouse Clubs &Supercenters (452910)

1997 2002 Growth

# of Stores 1,530 2,912 90%

Sales ($1,000) 81,918,756 191,252,396 133%

Source: http://www.naics.com/

Discount Industry & the NAICSCode

452112NAICS Code:

DiscountDepartment Stores

Industry Sub-Sector:

This U.S. industry comprises establishments known as department storesthat have central customer checkout areas, generally in the front of thestore, and that may have additional cash registers located in one or moreindividual departments. Department stores in this industry sell a wide rangeof general merchandise (except fresh, perishable foods).

Source: http://www.naics.com/

Discount Department Stores(452112)

1997 2002 Growth

# of Stores 6,378 5,650 -11%

Sales ($1,000) 126,122,830 133,886,174 6%

Source: http://www.naics.com/

Warehouse Clubs & Supercenters (452910) +Discount Department Stores (452112)

Combined

1997 2002 Growth

# of Stores 7,908 8,562 8%

Sales ($1,000) 208,041,586 325,138,570 56%

Since Wal-Mart belongs to both Sub-Sectors, Wal-Mart data will be compared to the total of both NAICS codes 452910 & 452112

Source: http://www.naics.com/

Wal-Mart

1997 2002 Growth

Sales ($1,000) 104,859,000 217,799,000 108%

Source: www.walmart.com

Wal-Mart’s performance relative toWarehouse Clubs & Discount Stores

In 1997 Wal-Mart contributed 50% of the Sub Sector’s overall Sales. (Warehouse Clubs - 452910 & Discount Stores - 452112)

By 2002 Wal-Mart sales grew to 66% of the Sub Sector’s overall Sales.Source: http://www.naics.com and www.walmart.com /

Market Share & HHI

ENTERPRISE MARKET SHARELet's begin at the beginning. A two year time frame (2006-07) was used because their fiscal yearshave different closing dates. The fiscal years of Mal-Mart (WMT) and Sears (SHLD) closed in early2007 while those of Costco (COST) and Target (TGT) closed in late 2006. The companiesgenerated $456.6 billion in combined sales revenues. Wal-Mart's share was 62.2 percent of grouprevenues. The market shares of its three competitors were 13.2, 13.0 and 11.6 percent.

Source: http://www.customersandcapital.com/book/walmart/

HHI CalculationsMarketShare Sqd.

MarketShare

2006-07

23.211.6

16913.0

174.2413.2

3,868.8462.2

HHI = 3,868.84 + 174.24 + 169 + 23.2 = 4235.28

HHIThe higher the index, the more concentration and (withinlimits) the less open market competition. A monopoly, forexample, would have an HHI index of 10,000, the maximumscore.

If the 4 company’s had an equal share of 25% the HHI index would be2500, with no particular company having a higher concentration overthe others. Based on these parameters an HHI index of 4235.28, theDiscount Department and Warehouse Clubs industry would beconsidered low to mid concentrated with Wal-Mart having the majorityof share.

Source: http://www.oligopoly watch.com/2003/08/15.html

Wal-Mart’s Performance Relative toCompetitors within the same Sub-Sectors

Source: http://www.smartmoney.com/stock-quote/?referrer=/marketmap/index.cfm&story=competition&symbol=WMT

2008 Wal-Mart Stores Inc. BJ's Wholesale Club Inc. Costco Wholesale Corp. Target Corp. Family Dollar Stores Inc

Industry Discount, Variety Stores Discount, Variety Stores Discount, Variety Stores Discount, Variety StoresDiscount, Variety Store

Current Share Price 47.12 28.68 45.03 31.2 27.77

Market Value $184,831 mil $1,687 mil $19,509 mil $23,487 mil $3,885 mil

Revenues $404,040 mil $9,944 mil $73,068 mil $65,259 mil $7,054 mil

Net Earnings $13,705 mil $132 mil $1,284 mil $2,633 mil $240 mil

5-yr Sales Growth 9.14% 7.62% 10.15% 7.25% 7.34%

5-yr Earnings Growth 9.84% 4.37% 11.04% 8.59% 2.73%

Net Profit Margin 3.40% 1.30% 1.80% 4.00% 3.40%

Short Interest 2.1 5.9 3.9 4.8 2.3

Proj. Long-Term EPS Growth (%) 10.30% 11.30% 12.10% 12.30% 9.80%

Forward P/E 13.9 12.9 15.5 10.7 15.9

PEG 1.35 1.14 1.27 0.87 1.63

Price/Sales 0.5 0.2 0.3 0.4 0.6

Price/Cash Flow 10.7 8.7 11.4 6.8 10

Price/Book 2.8 1.7 2.2 1.7 3

ROE 20.80% 13.60% 14.20% 18.60% 19.50%

ROA 8.10% 6.50% 6.10% 5.90% 9.20%

Dividends $0.95 $0.00 $0.64 $0.64 $0.54

Dividend Yield 2.02% 0.00% 1.42% 2.05% 1.94%

Payout Ratio 27.30% 0.00% 26.50% 17.70% 29.80%

Total Return (12-mos) -5.30% -11.50% -32.80% -42.60% 34.40%

Total Return (3-yr) 7.60% -10.80% -6.30% -40.20% 21.70%

Beta 0.2 0.5 0.8 1.1 0.1

% Off 52-wk High 26.20% 35.24% 40.14% 47.61% 14.55%

% Above 52-wk Low 0.43% 1.13% 46.68% 21.87% 54.28%

On-Balance Volume Index 53 85 69 86 161

Travel Agencies

NAICS code: 561510

This industry comprises establishments primarily engaged in acting asagents in selling travel, tour, and accommodation services to the generalpublic and commercial clients.

The travel agency industry has been seeing a decline in both sales (-6%)and # of establishments (-26%). The decline is sales from ‘97 to ’02 canbe attributed to the slight 2001-02 recession in the US economy after thedot com bubble burst and 9/11 terrorist attacks. The number ofestablishments has decreased due to the popularity and convenience ofe-ticketing options.

1997 2002 Growth

# of Establishments 29,332 21,705 -26%

Sales ($1,000) 9,977,110 9,387,397 -6%

Source: http://www.naics.com/

NAICS code: 511130

This industry comprises establishments known as book publishers.Establishments in this industry carry out design, editing, and marketingactivities necessary for producing and distributing books. Theseestablishments may publish books in print, electronic, or audio form.

There has been an increase in both sales and # of establishmentsfrom ‘97 to ‘02. The outrageous cost of college books must becontributing to the increase in sales.

Book Publishing

1997 2002 Growth

# of Establishments 2,684 3,570 33%

Sales ($1,000) 22,648,251 27,162,866 20%

Book Publisher’s & Travel Agency’sSales & No. of Establishments

Compared.

Industry Life Cycle

Based on the competitive and comparative analysis (Sales, # of establishments, growth rates) I would place Discount Stores in the low to mid section of The Maturity stage in the Industry Life Cycle,Book Publishers in the mid to high Maturity stage and Travel Agency's in the mid Decline stage.