Taxable Retail Sales & Dealers - Richmond Metro

The State of Virginia just recently made 2009 taxable sales figures available through Weldon Cooper Center's VaStat website and I have evaluated them for the Richmond MSA and updated charts at my web site here.

The department collects taxable sales data on numerous business classifications using the NAICS, (North America Industrial Classification System), and the reporting of this by select categories since 2006 indicates the condition of the Richmond metro's retail market as summarized below. To see which businesses are covered by each classification, please go to this link. The Richmond Metro includes Chesterfield, Hanover, Henrico and Richmond. (Click on the table to see larger image)

Note the percent change from '06 - '09 column, particularly in Building Materials, Garden & Supplies. This is a huge drop at companies such as Lowes and Home Depot and represents a decrease of $413 million annually. The table below adds the remaining MSA's counties and cities taxable sales to the metro and then compares this grand total to the number of single and multi-family housing permits occurring in the Richmond MSA in 2006 and 2009.

On it's face, it appears the pie has shrunk dramatically for this key area of our local economy, but the number of companies, (referred to as Dealers) has also decreased as can be seen in the following table.

Since the number of dealers hasn't fallen as much as their respective market, then it would appear their share on average would have also gone down and the following table shows just that outcome for the Building Materials, Garden & Supplies companies.

The major outcome of these reduced sales will be continued retailer closings, lower municipal revenues from sales taxes, and increasing retail vacancies. As the foregoing table showed, in these categories, the Richmond Metro saw a loss of 51 dealers during this time period while overall, taxable sales increased by 7%.

But if you look strictly at percentage growth in dealers, the three highest of the categories covered are Health & Personal Care, (beauty salon, nail salon, cosmetics),  at 43%, Nonstore Retailers, (not located in retail space) at 40% and General Mechandise, (Wal-Mart, Target, CostCo, Sams, K-Mart, Walgreens, CVS, etc) at 38%.

Two retail categories, Food & Beverage Stores and General Merchandise continue to represent a larger share of this retail sales pie. In 2006, the two represented 45%, (20% and 25% respectively) and in 2009, they accounted for 55%, (26% and 29% respectively).

While this increasing share was occurring, more of these two retailing categories stores were being opened. In fact, the number of Food & Beverage dealers increased from 529 to 631, a 19.3% increase from 2006 - 2009. However, their average taxable sales per dealer increased to $2,704,273. With respect to General Merchandise, the number of dealers rose from 120 dealers in 2006 to 166 in 2009, an increase of 38.3%. Since this rise was greater than the increase in sales during that same period, the average sales per dealer declined by 9% to $11,531,631.

Real Estate Cycles

Real estate, like the economy, follows cycles. How long each phase lasts depends on many factors, such as; the extent to which the peak or trough lasted, the height or depth of each, external factor's impact on financing availability, economic conditions, employment, supply/demand, etc.

Shown below is one expression of the cycle:

Each product type, industrial, office and retail, have their individual cycles, but generally during a major economic slump they will follow a similar path.

We all know the old real estate saying, "Location, Location, Location", but throughout my career, the really big money has been made as a result of TIMING. It is those investors who have the wherewithal to buy near the bottom and sell near the top. It is a very simple strategy, but difficult to carry out because of the impact of psychology on the overall market's behavior. This can be seen during the current downturn by the large spread between the Ask price and the Bid price. When the cycle moves from either a peak or a trough, the greatest difference in Bid/Ask price occurs. The reason, the seller/ask or the buyer/bid belief that the peak or trough point hasn't been reached as it continues to move away, shown with the red arrows below. The faster the cycle's turn, the more the gap increases.

The red arrow pointing past the cycle's bottom is where commercial real estate buyers are today and if their sentiment is accurate, we haven't yet reached the bottom of the cycle.

The red arrow going past the peak is where we were in 2007 and the Ask price continued beyond while the Bid began a fairly rapid fall as a result of financing issues throughout 2008. Finally in 2009, the seller's ask price began to fall (if they were still marketing their assets), but the buyers were firmly sitting on the sidelines. Thus, one of the lowest volume trading years since the early 1990's.

I personally believe that 2010, and maybe even 2011, will also be quite anemic volume years due to the federal government's generosity in allowing banks to extend their commercial loans and not mark them to market. As long as these underwater assets are allowed to remain as performing loans, the longer it will take to reach the market's bottom and and turn towards recovery.