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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/14632
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| Title: | What Explains Superior Retail Performance? |
| Authors: | Gaur, Vishal
Fisher, Marshall
Raman, Ananth |
| Issue Date: | Oct-1999 |
| Publisher: | Stern School of Business, New York University |
| Series/Report no.: | OM-2005-03 |
| Abstract: | We analyze the performance of retail firms for the period 1978-97 using
public financial data. Our performance measures are long-term stock
returns and whether the firm filed for bankruptcy in the period of
study. We assume that over a long time period of at least five years,
stock returns are a reasonable measure of the overall success of a firm.
We have found a very wide disparity in performance between firms. On the
one hand, retailers like Wal-Mart, the Gap and Circuit City have had
phenomenal success (nineteen year compounded stock returns of 31.2%,
29.5%, and 34.5%, respectively), while on the other, 17% of the public
retail firms filed for bankruptcy. We investigate how the following
levers managed by the CEO of a retail firm affect performance: return on
assets, sales growth, inventory turns, gross margin, financial leverage,
and selling, general, and administrative expenses. The nature of the
analysis is contemporaneous, providing insights into managerial actions
that correlate with success as measured by stock returns, but not a
prediction of future stock returns. We find that (1) return on assets,
sales growth, standard deviation of return on assets and financial
leverage explain more than 50% of the variation in stock returns for
periods of ten years or more; (2) retailers in different segmentsâ
apparel, department stores, grocery and convenience stores, drugs and
pharmaceuticals, jewelry, consumer electronics, home furnishings, toys,
and variety storesâ achieve similar return on assets and return
on equity by following very different strategies with respect to their
gross margins and inventory turns; (3) even within the same segment,
high gross margin correlates with low inventory turns, and with high
selling, general, and administrative expenses; (4) risk of bankruptcy is
related to the mismatch between how fast a firm attempts to grow versus
what growth rate it realizes. We also test for a negative correlation
between sales growth and return on assets, which is widely believed to
be true but is not borne out by our data. |
| URI: | http://hdl.handle.net/2451/14632 |
| Appears in Collections: | IOMS: Operations Management Working Papers
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