Retailing and the period leading up to the Great Recession: a model and a 25-year financial ratio analysis of US retailing

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Abstract:

Today, more than ever, retailers need to analyze the key solvency (liquidity) and efficiency financial ratio measures that affect how well their firms perform and to engage in long-term activities that will lead to improved results. Clearly, the recent ‘Great Recession’ has had a significant negative impact on retailers worldwide. Yet, an important question remains largely answered: Was the retail industry a major contributor to the events leading up to the economic crisis or was it an affected bystander shaken by the recession? This paper addresses the question for US retailing, the largest retail economy in the world. Although there has been considerable research on some aspects of the performance of the industry and individual firms, no prior studies exist that comprehensively examine the financial ratio performance of the totality of US retailing over time. Here, the financial performance of US retailers in 54 different sectors is analyzed for the 1982–2007 period using a model and data derived from Dun & Bradstreet's annual Industry Norms & Key Business Ratios. Results show that for many financial measures – such as the current ratio, liabilities to net worth, return on sales (profit margin), return on assets, financial leverage, and return on net worth – US retailing's financial performance has been in a steady decline for decades. The model introduced here is largely validated.

Keywords: Great Recession; financial ratio model; long-term trends; overall averages versus trends; ratio analysis; retail performance; tracking retail industry results

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/09593969.2013.801360

Affiliations: Department of Marketing and International Business, Zarb School of Business, Hofstra University, Hempstead, NY,11549, USA

Publication date: January 1, 2014

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