An International Empirical Analysis of the Financial Performance of Manufacturers and Retailers

Trade press and general arguments from channel members constantly assert that retailers are getting more powerful. Our empirical analysis, however, shows that the retail sector under-performs manufacturers and when measured in terms of shareholder return their performance relative to manufacturers is getting worse over time. The authors show that this phenomenon, which was first shown to exist in the US in the 1980s and early 1990s, still holds in the late 1990s and the early years of the 21st century and not only in the US but also in Europe. The authors generate some hypotheses that contribute to explaining our empirical findings. The authors sketch a variety of structural and strategic factors and find that the intensity of retail price-based competition might be a key and under-appreciated factor. Retailers do seem to be increasing their vertical power, but they find it difficult to hold on to any additional resources they obtain from their suppliers because of intense price competition in the retail sector.