What a difference a year can make. This time last year the global economy was still on shaky ground, Europe was wracked by a sovereign debt crisis and U.S. unemployment numbers were roughly 9%. Although retailers were going on the offensive in terms of investment in growth strategies they were finding that sales gains were largely elusive.
Then, beginning in October of 2011 the outlook brightened and since that point there has been a sharp rise in stock prices and stronger sales for the majority of retailers. (Recent stock market corrections show the recovery is still fragile, but the long-term trend is moving upward.)
For the third year in a row RIS
has teamed up with wRatings
, a financial analyst firm headed by founder and CEO Gary Williams, to take a detailed look at the top 10 and bottom 10 retailers from a business and stock market perspective.
All data for this story was pulled after the 13th week of the year to ensure inclusion of all financial reports for the full year of 2011 and any effects of these results were factored into stock prices and wScore evaluations.
The methodology that Williams uses to create wScore evaluations is based on tracking long-term performance trends and examining what he calls "moats." Basic economic theory shows that in a highly competitive market business performance deteriorates as rivals imitate advantages. To achieve durable success, retailers must defy the force of imitation that causes advantages to deteriorate.
Bottom 10 Retail Laggards
Based on wRating data, here are the bottom 10 performing companies in retail:
- Trans World Entertainment
- Pacific Sunwear
- Rite Aid
- Bassett Furniture
- CVS Caremark
- Build-a-Bear Workshop
- Hancock Fabrics
In the laggard category, there are few surprises. Two retailers are locked into product categories that are fast becoming digital – Trans World Entertainment (parent company to music retailer f.y.e.) and Books-a-Million. Both are struggling to redefine their business models. dELiA’s and Pacific Sunwear have failed to differentiate in a highly competitive youth fashion category. Hancock Fabrics, the one retailer to return to the laggard list from 2011, is the third largest retailer in a three-retailer category.
The two drug store chains on the laggard's list, Rite Aid and CVS Caremark, have successful businesses and registered strong year-over-year stock-price growth. So, why the low wScores?
The commoditized nature of their product mix prevents them from achieving much differentiation and they are locked into price wars with discount druggists. Online retailers, such as soap.com and diapers.com (not to mention Amazon) are also chipping away at the edges of their business.
Top 10 Retail Leaders
Let's look at the top performers in retailing, those who achieved ongoing success even in tough times:
- Lululemon Athletica
- Vera Bradley
- The Buckle
- Tiffany & Co.
- Select Comfort
The first thing that jumps out when reviewing the 2012 wScore leaders list is the sense of consistency with 2011. Six of the top 10 make a return to the 2012 list. Coach, Lululemon Athletica, Tempur-Pedic, Fossil, Select-Comfort and Tiffany all return with strong showings. One similarity among these wScore leaders is that their merchandise mix is dominated by private-label products. Two new entries to this year’s list, Vera Bradley and Aeropostale, also follow the private-label formula.
From an investment perspective, the returning leaders have seen their stock prices follow their wScores on an upward track, except for two of the new entries – Vera Bradley and Aeropostale. If history is a guide, then stock prices for these two retailers will likely follow an upward track as investors begin to take note of their strong fundamentals.
For more insight from Williams and wRatings, along with more charts, more lists and much more detail, go to the May 2012 RIS
cover story "2012 Retail Leaders and Laggards
." Also, Williams is the upcoming keynote speaker at the RIS
2012 Retail Executive Summit, which takes place on June 13 to 15 in Del Mar, California. For more information, click here