Industry Analysis Project - Specialty Retail Industry

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Industry Analysis Project

Specialty Retail Industry

Introduction

The industry I have chosen for my paper is the Specialty retail industry or the clothing industry which has the SIC code of 5651. This industry consists of companies that are primarily in the business of clothing and accessories for men, women and children. These companies include unisex clothing stores and jeans stores for all ages instead of stores aimed at a particular age group or sex.

Industry Environment
The clothing industry in the US entails more than 100,000 stores with combined revenues of over 150 billions dollars a year. The giants within this industry include Abercrombie & Fitch, GAP, Urban Outfitters, and TJX Companies, which I shall be concentrating on in this paper. This industry is extremely concentrated and the fifty largest companies make up more than 65% of the industry sales. The main drivers of this industry are personal income and fashion trends. The profitability of firms within this industry lies on effective marketing and sourcing (merchandising) which puts the larger firms ahead of the pack. Smaller companies usually compete within local markets or serve a niche market like a particular sex or age group or a differentiated and unique product. The industry is highly labor intensive with annual revenue per worker at around $150,000. The competitors to this industry include large department stores, discount stores and online retailers that have grown tremendously over the past decade.

Financial Conditions
Some of the industry leaders in Specialty retail included GAP Inc. with 2010-year end sales at $14.66 billion, followed closely by TJX companies at $14.48 billion. Other companies within the industry include Urban Outfitters with 2010 year-end sales at $2.48 billion and Abercrombie & Fitch at $2.93 billion. Company| Sales| Net Income| P/E ratio|

GAP| $14.66 B| $1.1 B| 10.9|
TJX| $14.48 B| $1.21 B| 17.9|
A&F| $2.93 B| $254 M| 21.3|
Urban Outfitters| $2.48 B| $220 M| 18.8|

GAP Inc. is one of the largest specialty retailers in the U.S. leading in sales, and operates with 135,000 employees with 3,076 stores, out of which 2,551 are in the United States. GAP is based in San Francisco in California and was founded in 1969 by Donald and Doris Fisher. For the year that ended on January 29th 2011, GAP’s total sales were up by 3% as quoted according to their financial statements. Their earnings per share were $1.86 per share, which grew by 18% as compared to the earlier year. GAP’s current price/earnings ratio is 10.9 which is lower than most of its competitors. Moving on, TJX is the parent company of some of the largest off price retailers in the US, namely TJ Maxx and Marshals, who sell big brand names for 20-30 percent less than the parent stores as these big label company’s are trying to shed excess inventory. TJX did better than most of its competitors during the economic downturn as most consumers were more price conscious, and in 2009 TJX had a 7% increase in sales. TJX’s current Price/ earnings ratio is 17.9, which is close to the industry average. Urban Outfitters is another prominent name in the Specialty retail industry and they are more commonly known to cater to the “hip” and “kitschy” customer base. Their sales in the current year was $2.41B yielding a profit of $221M with a price/ earning ratio of 18.8 which is also close to the industry average. Lastly, Abercrombie and Fitch is a company with a vibrant history, started in 1892 in Manhattan, New York and closing down its flagship store in 1977 after which the brand has changed a few hands. However, since 2000 it has been revived and had a steady growth in earnings and in 2010 its sales were at $2.93B yielding a profit of $150M and has a current price earning ratio of 21.3. Abercrombie is often claimed by many industry experts to be the next GAP in the retail industry because of its growth in the past decade and...
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