Image: Home Depot store
Charles Krupa  /  AP
Home Depot has been badly damaged by the housing crisis, which began in earnest in 2007. From 2007 to 2008, the company’s stock fell from $35 to under $27. Poor management didn't help.
By
updated 8/2/2011 7:16:49 AM ET 2011-08-02T11:16:49

It’s no secret that U.S. retail sales collapsed in 2008 and 2009 because of the recession. But several of the largest retailers consistently performed poorly between 2005 and 2010 for reasons that go beyond the recession. 24/7 Wall St. looked at which retailers lost most in total sales during that period and found that their troubles have a few common elements.

First, some of these retailers compete with even larger retailers. This is true of a company like Foot Locker. Most high-end athletic gear is available at big box retailers and department stores.

Another reason for the poor performance of some of these companies is the presence of a number of direct competitors of relatively similar size. The office products retail sector is occupied by Office Depot, Office Max, and Staples. And, Wal-Mart’s Sam’s Club has created lines of merchandise that also compete in the sector.

The third reason that some of the retailers have done badly is poor management. Robert Nardelli was a former Jack Welch lieutenant at GE. Nardelli was passed over for Welch’s job. He was hired by Home Depot to run the company after he failed to get the promotion. Between 2000 and 2007, Nardelli managed to alienate both employees and shareholders with poor results and extravagant pay packages. When Nardelli left, he became CEO of Chrysler, which also faltered under his management. JC Penney has had similar management problems. Poor merchandising decisions by CEO Mike Ullman, who has run the company since 2004, hurt revenue. He was recently replaced by the head of Apple’s retail store operation, Ron Johnson

The retail industry has fared relatively well in the last five years, despite the recession. Most big operators have been able to increase revenue since the middle of the last decade. U.S. GDP grew by 16 percent over that period. Sales at industry giants such as Wal-Mart, Target, and Costco have risen by 21 percent, 13 percent, and 28 percent, respectively. Although smaller retailers than these would protest if their results were compared to the giants, with over $600 billion a year in combined sales, the trio are a reasonable proxy for the entire industry.

24-7 Wall St.: The happiest countries in the world

To identify the largest retailers in America with the worst sales, 24/7 Wall St. looked at the National Retail Federation’s Stores Magazine. Using the 2006 and 2001 “Top 100 Retailers” lists we then identified companies that had lost the most in annual retail sales from 2005 to 2010. We only ranked public companies in order to demonstrate how declining sales affect the overall health of the company. We also excluded companies with significant M&A activity because it can distort sales.

8. J.C. Penney
Drop in sales:
-5.9 percent
2005 sales: $18.8 billion
2010 sales: $17.7 billion
5-year change in stock price: -52 percent

J.C. Penney is an iconic U.S. brand. It was started by James Cash Penney in 1902. At one point, it employed Sam Walton, the founder of Wal-Mart. J.C. Penney suffers from two problems. The first is that it is in the highly competitive middle-market department store business, which includes Kohl’s, Macy’s, and Dillard’s. Poor management has allowed competitors to flank the company in store locations and merchandise selection. Mike Ullman has been the head of J.C. Penney’s during its decline. He joined the company as CEO in 2004. Problems at J.C.Penney have been severe enough that the board is replacing Ullman with former Apple Store chief Ron Johnson.

7. The Gap
Drop in sales:
-9.4 percent
2005 sales: $16 billion
2010 sales: $14.5 billion
5-year change in stock price: +13 percent

The Gap, which was founded in 1969, was the cool location for casual dress during the 1990s, capturing the nation with its slogan, “Fall into the Gap.” The company’s 3,100 stores include Gap, Old Navy, and Banana Republic. The Gap’s competition has grown both because of merchandise decisions at large department stores and the rise of retailers like Abercrombie & Fitch. Gap has been through several CEOs since it fired its famed chief Mickey Drexler.

24-7 Wall St.: Cities with the most most offices on the chopping block

6. Foot Locker
Drop in sales:
-12.3 percent
2005 sales: $5.7 billion
2010 sales: $5.0 billion
5-year change in stock price: -17 percent

In 1974, Woolworth, another famous American retailer, founded Foot Locker to take advantage of the growing interest in athletic shoes; Nike was only founded ten years earlier. Unfortunately for Foot Locker, athletic shoes are now sold by almost every department store and big-box retailer in the United States. The company’s major products, which include Nike, Adidas, and Underarmor, built their own franchises by being available in as many retail outlets across the country and even by having their own stores.

5. The Home Depot
Drop in sales:
-16.6 percent
2005 sales: $81.5 billion
2010 sales: $68.0 billion
5-year change in stock price: +1 percent

The Home Depot is the world’s largest retailer of building materials and home improvement products. The company has over 2,200 stores worldwide. The chain has been badly damaged by the housing crisis, which began in earnest in 2007. From 2007 to 2008, the company’s stock fell from $35 to under $27. Home Depot’s prospects were also hurt by the presence of Robert Nardelli, who operated the chain in the first half of the decade.

4. Office Depot
Drop in sales:
-16.8 percent
2005 sales: $14.3 billion
2010 sales: $11.9 billion
5-year change in stock price: -89 percent

All three of the major office supply companies — the other two being OfficeMax and Staples — have done poorly for three reasons. First, there are too many competitors in the sector. Second, retailers from outside the sector, particularly the Wal-Mart/Sam’s Club franchise, have further divided market share and depressed the margins. And the last and most obvious battle is the toll taken by the recession.

24-7 Wall St.: The states that spend the most (and least) on healthcare for the poor

3. OfficeMax
Drop in sales:
-22.8 percent
2005 sales: $9.2 billion
2010 sales: $7.1 billion
5-year change in stock price: -83 percent

OfficeMax is the smallest of the three retailers in its office supplies industry, with total revenue of $7 billion, compared with $25 billion for market leader Staples. And it’s because of Staples that the company never had a chance of breaking through in a meaningful way since its inception. Its small market share prevents it from having the purchasing and distribution leverage that its bigger rivals do.

2. Dillard’s
Drop in sales:
-23.1 percent
2005 sales: $7.8 billion
2010 sales: $6.0 billion
5-year change in stock price: +87 percent

Dillard’s is another huge America retailer founded in the first half of the last century that now finds itself in the crowded general department store sector, which includes Saks and Macy’s. All three companies have struggled to expand and have posted only modest net income.

1. Sears
Drop in sales:
-23.5 percent
2005 sales: $54 billion
2010 sales: $41.3 billion
5-year change in stock price: -50 percent

Sears Holdings was created in November 2004 by a merger between Sears Roebuck and Kmart. Sears Roebuck was once among the largest retailers in the country and essentially created the catalog business. The merger was engineered by hedge fund manager Eddie Lampert. Each of the chains was weak before the transaction, and Kmart was in bankruptcy. Management has been unable to improve the company’s fortunes, which to some extent are hurt by the power of Target and Wal-Mart.

24-7 Wall St.: Why the Dow will plunge to 7,000

Copyright © 2012 24/7 Wall St. Republished with permission.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.38%
$30K home equity loan FICO 4.98%
$75K home equity loan FICO 4.40%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 10.87%
10.87%
Cash Back Cards 16.36%
16.33%
Rewards Cards 15.93%
15.92%
Source: Bankrate.com