Abstract

This study aimed to investigate the existence of differences in retail firms’ strategy towards accomplishing profitability targets. By using data of Greek retail sector, we find that profitability, evaluated in terms of return on equity, as well as the average sales growth rate, does not differ statistically within the sub-sectors of the Retail Sector. However, significant differences not only among the sub-sectors but also among firms are observed in the other elements that define profitability, namely gross profit margin, asset turnover ratio and the general expenses to sales ratio. Moreover, by using random coefficient panel data methods, it was found that gross margin is positively related with general expenses to sales ratio and negatively correlated with asset turnover ratio. These impacts vary widely across retail sub-sectors. It is concluded that the retail firms use different strategies to achieve similar return on equity. Besides, the hypothesis that firms face steep reductions in operating income conditional to high proportion of fixed to variable costs is verified. Additionally, our results do not support the hypothesis that the rapid developing firms show less profitability as it is expressed by return on assets. Finally, it is seen that the financial crisis in Greece has affected the accounting ratios of Greek retailers and especially return on assets. The results of this paper can be used by academics and practitioners to assess the reasons the performance of retail firms are above or below the industry standards.

Key words: Retail sector, random coefficient modeling, panel data, return on assets, sales growth.