Just-released statistics show that the last two years were indeed depressing ones for specialty fitness. Overall, the cost of doing business soared as the return on total assets sunk farther then a Mafioso whose feet were sealed in concrete.
In addition, net operating profits on average experienced a similarly horrifying downward plunge. Interestingly, though, while sales per square foot went down by just over 10 percent, sales per employee actually went up by 38 percent, according to the National Sporting Goods Association's biannual "Cost of Doing Business Survey."
The NSGA analysis compared mostly 2002 results with numbers reported in 2001. Depending on the store's fiscal year, some 2003 results were also included. More than 310 companies participated in the 2003 study, done by Industry Insights Inc. of Columbus, Ohio, with about 20 specialty fitness retailers -- a statistically valid number for this kind of information, said Tom Doyle, NSGA vice president of information and research.
Looking at profitability, return on total assets spiraled down 72 percent -- from 15.8 percent reported in 2001 to 4.4 percent in the recent report. Go back another two years and you find that the return on total assets had increased in 2001 from 13.4 percent in 1999. Net operating profits showed a drop of more than half to 2.0 percent in 2003 numbers from 4.2 percent for 2001, which was also a slight increase (0.5 percent) over 1999. Despite some gains in profitability in 2001, it seems the industry backslid again in the most recent report. Doyle said that occurred because the end of 2001 was the end of the recession, although of course the "end" takes at least 12 months to run its course. That means that these latest numbers are still recession-tainted, he said.
Productivity was a mixed bag, the NSGA survey found: Sales per square foot dipped just over 10 percent to $300, from $333 in 2001. Compare that, however, to a substantial increase in sales per employee -- from $248,681 to $343,375. But consider 1999 sales- per-square-foot figures of $465 to discover that the decline in the last four years has actually dropped 35 percent.
Gross margins remained similar at 38.2 percent, although that was up 6.1 points over 1999's figure of 32.1 percent. Also a slam to productivity were increases in total operating expenses (36.2 percent in 2003 vs. 33.9 percent two years ago vs. 29.0 percent in 1999) and increases in shrinkage (0.6 percent in 2003, or up 0.2 over 2001 and up 0.5 total over 1999's figure of 0.1 percent). A minor increase in inventory turnover couldn't save the day (4.4 vs. 4.1), especially since inventory turn was 9.1 in 1999.
"Although surveyed in 2003, the balance sheets provided reflected the difficult recessionary environment of 2002," Doyle said.
The study itself provides additional comparisons, including other segments, and is free to NSGA retail members. For more information, contact NSGA Vice President and CFO William H. Webb Jr. at 847-296-6742, ext. 104.
SNEWSÂ® View: We knew 2002 wasn't a banner year, but this sheds an even more dreary light on it. Interesting to note is how much higher sales per employee are compared to two years earlier, up even from four and six years ago. With retailers trying to rein in expenses they can't control (such as insurance and rent), they are most likely trimming staff and asking more of those they have onboard. These stats also compare favorably to our own informal survey done recently in which we talked to dozens and dozens of retailers across the country about the state of business. Those reports, compiled by region, will appear in our new and compact business publication, FitBiz by GearTrendsÂ®, which will mail in mid-March. Basically, we found most retailers calling 2003 "mediocre" or some such non-exclamatory phrase, although it was already faring better than 2002. However, we also found a few of those same ones calling 2003 "slow" were also claiming that sales went up by 5 percent or 10 percent -- not surprising since 2002 was still recovering. Nevertheless, we found wide swings in revenues and sales reported to us confidentially, and many of those claiming a decent close to 2003 also admitted that only pulled them flat with 2002. All the details, along with a bevy of other practical business reports, will appear in the Winter/Spring issue of FitBiz.