NEW YORK ( TheStreet) -- The retail sector is riskier than that of the entire U.S. economy, according to a recent report of IBISWorld's risk ratings. IBISWorld measures the risk factor of economic sectors for the next 18 months on a scale 1 to 9, with 1 being the least risky and 9 being the most. Retail as a whole garners a score of 6.4, while the U.S. economy is a bit more stable at 5.5. And within the already risky retail world, IBISWorld has identified the riskiest of the risky subsectors. Such sectors are weighted on structural, growth and external sensitivity risks, with IBISWorld asking such qeuestion as: How mature is the group? How fierce is its competition? Is the sector affected by disposable income or rising interest rates?
In perhaps little surprise to anyone who has ever attempted to buy a used car, among 64 retail industries, used-car dealers rank the riskiest in the U.S., followed closely by department stores. Department stores, which received a score of 6.48, tend to have slower inventory turn, historically hold more debt on their balance sheets and have a mature store base, which means there aren't a whole lot of growth opportunities. These factors all perpetuate a higher risk score. "Department stores are finding it difficult to change the consumers' perception, and are still losing out to some of the discount mass merchants and online channels," IBISWorld analyst Toon van Beeck says. In a separate study, IBISWorld named Saks as the riskiest company within the segment. Still, department stores have rebounded from their lows, posting some of the strongest same-store sales results in June. Nordstrom ( JWN) led the group with a 14.1% surge, while J.C. Penney ( JCP) rose 4.5% and Macy's ( M) grew 6.5%. Kohl's ( KSS) is also one of the safer stocks in the segment. Also falling within the top 10 riskiest retail industries is men's clothing stores, which include publicly traded players like Men's Wearhouse ( MW) and Jos. A. Bank ( JOSB). With unemployment remaining stubbornly high and the stock market one big rollercoaster ride of late, it's hardly surprising that the men's segment would be one of the most vulnerable. Still, the risk for men's clothing has eased a bit from last year. Amid the high-risk sectors, there are, of course, several retail industries that are safer to play. E-Commerce and online auctioneers like Amazon ( AMZN) and eBay ( EBAY) are among the fastest growing players in the space and have a much more moderate risk score of 4.47.
Warehouse clubs and supercenters log in as the fourth-safest retail industry, with a score of 4.73. This segment includes discount behemoth Wal-Mart ( WMT), and home improvement retailers Home Depot ( HD)and Lowe's ( LOW). "These company have low structural risk, with not a lot of competition. The core players hold a sizable market share, and as a result can compete on price," van Beeck says. Discretionary stocks like dollar stores and discounters tend to be the safest bets when consumer confidence is weak, so it's hardly a shock that this segment is one of the least risky. While shoppers may still not be splurging on themselves, shopping and lower-priced merchants, pet stores remain lucrative, and thus have much lower risk score of 4.78. "This industry doesn't seem to fluctuate," van Beeck says. "There isn't a lot of competition and we foresee continued growth over the next 18 months." The only major publicly traded pet retail stocks is PetSmart ( PETM), which competes with privately-held Petco, as well as discounters like Wal-Mart and Target ( TGT). PetSmart recently announced a 25% hike in its dividend payout and upped its share repurchase program to $400 million. -- Reported by Jeanine Poggi in New York.
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