Fortune 100 Shows Signs of Retail Strength
Reports of retail’s death may be premature, according to the newly-released
Fortune 100 list of the 100 largest U.S. corporations during 2008. The list included 15 retailers, with discount chain Wal-Mart coming in second, only trailing petroleum refiner Exxon Mobil.
A closer look at some of the retailers who made the Fortune 100 for 2008 reveals the development of several vertical-specific trends. For purposes of this article, “retailers” are considered to be companies whose sole or primary function is retailing goods to consumers. Other companies who engage in retail as a secondary business, such as petroleum refiners including Exxon Mobil and telecommunications firms, are excluded.
Discount
Discount retailer Wal-Mart’s slip from number one in 2007 to number two in 2008 might be seen as a sign of weakness in the discount vertical, but is more likely due to record oil prices boosting Exxon Mobil’s profits than anything else. Wal-Mart, Costco and Target all finished in the top third of the Fortune 100, demonstrating consumers’ continuing desire for low prices and convenience during tough economic times which started in 2008. Wal-Mart in particular reported strong sales in 2008, with Costco also reporting mostly positive sales numbers and also doing well in customer loyalty ratings. Target did not fare quite as well but still holds a strong national presence in the discount vertical. Looking forward, Wal-Mart is poised to continue its dominant performance in 2009 while Costco and Target will likely see more flat results.
Supermarket
Supermarket chains Kroger, Safeway and Supervalu all made the Fortune 100. While Supervalu posted a net loss in Q3 2008 and Safeway had an up-and-down year, Kroger reported record sales and earnings during 2008. All three chains have a large retail footprint with numerous banners and formats in multiple regions of the country. Judging by the financial difficulties experienced within the past year by regional supermarket and grocery chains including Bruno’s, Bi-Lo, Fresh & Easy and Save Mart, these three larger players are successfully taking business away from smaller competitors. Discount retailers such as Wal-Mart, Target, Costco and Sam’s Club continue to pose a significant threat, however.
Drugstore
Drugstore retailers CVS Caremark, Walgreens and Rite Aid all saw sales growth in the pharmacy segment during 2008, which helped boost overall performance. Given the continuing aging of the U.S. population, pharmacy sales should continue to be strong in 2009, although loss of health benefits related to job losses may have an impact. Walgreens is going after the uninsured healthcare services market this year with a special promotion at its Take Care walk-in store clinics. Rite Aid, which came in at #100, may slip off the Fortune 100 in 2009 due to store closings and net losses.
Home Repair
Home repair retailers Home Depot and Lowe’s both made the Fortune 100 list despite disappointing financial results during fiscal 2008. This is indicative of both retailers’ massive size and dominance of the home repair retail market in the U.S. Even with high foreclosure rates significantly cutting into their business, these two retailers still control a multibillion dollar retail vertical.
Consumer Electronics
Consumer electronics retailers Best Buy and Dell were on the Fortune 100 list. At the end of 2008, two major brick-an-mortar consumer electronics retailers, Circuit City and Tweeter, declared bankruptcy as the result of poor financial performance. Best Buy reaped the benefits of its rivals’ misfortune during the year and is left as the only major brick-and-mortar consumer electronics chain in 2009. Competition will come from online competitors such as fellow Fortune 100 member Dell, as well as discount retailers such as Wal-Mart.
Department Stores
The department store vertical had a difficult 2008, with intense competition from discount retailers biting into sales. Sears and Macy’s both made the list, with Sears coming in at #49 and Macy’s at #96. Both retailers reported disappointing financial results for 2008. However, Sears offers an extremely broad assortment, is a truly national retailer with a well-established brand, and also operates the Kmart off-price chain. Macy’s offers a higher-end line of merchandise that does not compete with the discount vertical as directly as Sears does, and also has a national presence and well-established brand. It will be interesting to see whether either of these retailers is on the Fortune 100 list for 2009.
