WWW.IBISWORLD.COM August 2013 1 August 2013 Top 5 Riskiest Industries in the Mid-Atlantic By Brandon Ruiz The Mid-Atlantic population is forecast to grow, but that will not help all industries in the region; IBISWorld identifies the five Mid-Atlantic industries most under threat Business certification and IT schools face high competition from substitutes such as trade schools The Mid-Atlantic is home to 15.5% of the population, making it the third most populated region in the United States, according to the US Census. Additionally, the population in the Mid-Atlantic grew 2.9% to 41.2 million people from 2002 to 2012, with the urban population outnumbering the rural population nearly four to one. This is largely because the Mid-Atlantic region is home to three of the 10 most populous metropolitan areas in the United States: New York City-Northern New Jersey-Long Island; Philadelphia-Camden-Wilmington; and Washington, -Arlington-Alexandria. Although the population and potential client base is expected to grow, this unfortunately will not translate into revenue growth for all industries within the region thanks to threats like increased domestic and foreign competition, technology changes, import penetration and rising interest rates. IBISWorld analyzed more than 1,000 US industries and identified the top five riskiest within the Mid-Atlantic region during the next five years. IBISWorld measures risk by studying three components: industry structure (structural risk), expected future performance (growth risk) and economic forces (sensitivity risk). The risks scores are then measured on a scale of one to nine, where one represents the lowest risk and nine the highest. Lastly, the three types of risk are scored separately, weighted and combined to derive the overall risk score. The five following Industry 2013-2014 Overall Risk Score 2013 Revenue ($b) 2013-2018 Annualized Revenue Growth (%) 2008-2018 Annualized IVA Growth (%) Business Certification & IT Schools 6.36 8-5.6-5.1 Leather Tanning & Finishing 6.30 1.85-1.9-1.3 Homeowners' Associations 6.22 41.52 0 1.1 Book, Magazine and Newspaper Wholesaling 5.46 31.45-1.2-8 Laundromats 5.41 4.29-2.0-2.1 www.ibisworld.com 1-800-330-3772 info@ibisworld.com
WWW.IBISWORLD.COM August 2013 2 high-risk industries present opportunities for accountants to provide businesses with insight on navigating market perils, establishing credibility with new prospects and bolstering relationships and billable hours with existing clients. Business Certification and IT Schools Risk score: 6.36 The Business Certification and IT Schools industry offers courses in office procedures and secretarial skills, as well as courses that teach software packages, computerized business systems, computer electronics technology and local-area-network management. The Mid-Atlantic is home to 17.7% of industry establishments due to a highly concentrated urban population and generates 28% of total industry revenue. Increased competition from substitutes has reduced the Business Certification and IT Schools industry s share of the education market. Junior college, trade school, and university enrollment increased substantially during the recession as students tried to improve their hiring prospects in the midst of rising unemployment. Despite the US economy rebounding from recessionary lows, this trend has continued because unemployment still remains relatively high. For this reason, students have continued to opt for two- and four-year degree programs, raising the level of indirect competition for industry participants. Furthermore, for a generation that was raised with computers, courses provided by the IT segment are becoming increasingly negligible. As such, demand for the industry is expected to decrease as the number of computer-literate employees continues to grow. In line with reduced demand, the number of industry operators is forecast to fall at an annualized rate of 4.1% to 11,414 in the Business Certification & IT Schools 4.3 6.3 0.7 4.0 0.3 2.1 five years to 2018. However, industry participants could hedge this risk by cutting costs, such as labor, to support profit in the face of declining revenue. Furthermore, industry participants could offer additional courses to compete against their indirect competition: junior colleges, trade schools and universities. Leather Tanning and Finishing Risk score: Additional 6.30 States (as marked on map) The 1Leather VT Tanning 2 NH and 3MA Finishing 4 RI industry s 1.4 activities 1.8 include 6.8 tanning, 0.0 currying and finishing hides and skins. 5 Additionally, CT 6 7 8 9 industry operators purchase or obtain raw skins from slaughterhouses and treat and dye them to create finished leather for apparel, footwear, furniture and automobile seating.
WWW.IBISWORLD.COM August 2013 3 The Mid-Atlantic region accounts for the largest share of industry establishments at 26.7% in 2013, with New York contributing 17.2%. To this end, New York has many livestock farms that are able to provide the skin used for tanning and finishing. Additionally, many downstream markets, such as apparel manufacturers, reside in this region. However, the industry faces several threats that make it risky. The industry is heavily reliant on international trade with exports expected to account for 69.9% of industry revenue and imports expected to account for 81.3% of domestic demand. Because the United States is relatively expensive to operate in, industry participants are increasingly offshoring operations to low-cost emerging economies to stay competitive. To this end, industries that are vulnerable to high import penetration from emerging economies present risky deal opportunities. Exchange rate fluctuations also pose a potential risk, especially because the industry is export driven. The US dollar is expected to appreciate at an annualized rate of 1.8% in the five years to 2018. A stronger currency will make US goods more expensive and consequently deter US demand. For an industry reliant on exports to drive growth, this will likely lead to offshoring by industry operators. Industry participants can hedge this risk by offshoring operations to low-cost countries or cut costs, such as labor, to support profitability. Homeowners Associations Risk score: 6.22 A homeowners association is a legal entity created by a real estate developer for the purpose of developing, managing, selling or administering a community of homes. Because of the nature of the industry, consumers are typically the only major market. With 31.3% of Leather Tanning & Finishing 4.5 17.3 0.0 2 0.5 0.5 establishments residing in the Mid- Atlantic region, 22.6% of which reside in New York, the region accounts for a significant amount of industry participants because condominiums and apartment-run associations are common in densely populated areas. The recent recession adversely affected homeownership rates and housing starts, which are significant industry Additional drivers. States When (as homeownership marked on map) rates 1and VThousing 2 NHstarts 3MA are trending 4 RI downward, 1.4 industry 1.8 revenue 6.8 suffers 0.0 because fewer individuals are paying homeowner 5 CT association 6 7 fees. 8 9 Furthermore, the recession led to increased unemployment, which decreased per capita disposable income, making it difficult for individuals to purchase a new home. Nevertheless, as
WWW.IBISWORLD.COM August 2013 4 economic conditions improve, per capita disposable income and employment levels are expected to increase. This will lead to higher rates of homeownership and thus more housing starts. Furthermore, the industry is indirectly benefitting from low interest rates. Although the industry is expected to grow at an annualized rate of 0% in the five years to 2018, increases in US interest rates pose a potential risk for the industry s outlook. If interest rates increase, financing will be more expensive, which will negatively impact the housing market and thus homeownership rates. With less demand in homes, housing starts will also falter leading to fewer avenues for potential revenue growth. To this end, industry participants can hedge this risk by focusing on condominiums and Homeowners Assocations apartment-run associations because as the cost of financing increases, consumers will be more likely to shift to more affordable housing. Book, Magazine and Newspaper Wholesaling Risk score: 5.46 Companies in this industry engage in book, magazine, newspaper and periodical distribution and wholesaling. About 21.7% of industry participants are housed in the Mid-Atlantic region because of the highly concentrated population and the proximity to downstream retailers. Furthermore, industry participants typically establish warehouses close to their clients to minimize transport costs. Industry revenue is expected to decline at an annualized rate of 1.2% in Book, Magazine and Newspaper Wholesaling 22.1 10.7 Share of Total Indus Establishments by S Ambulance Services 2.2 0.9 8 0.3 1.6 2 4.3 7 0.2 6 9 8 4.1 0.2 1.8 11.5 6.3 1.1
WWW.IBISWORLD.COM August 2013 5 the five years to 2018, driven by deteriorating demand of their core products: books, newspapers and magazines. The ongoing substitution of digital media for printed products is only accelerating this process. To make matters worse, upstream publishers and downstream retailers are continually engaging in wholesale bypass, cutting out the wholesaler to save additional funds. For example, publishers have become increasingly focused on direct sales to consumers or using online retailers, such as Amazon, to bypass industry participants. This poses a significant threat to the industry. To this end, A&A services can increase billable hours through consulting by recommending industry participants cut unnecessary costs, such as labor, to support profitability. Additionally, industry participants can also sell directly to online retailers, but profit margins will be lower. Laundromats Risk score: 5.41 Industry participants operate facilities with coin-operated or similar laundry and dry-cleaning equipment for customer use on the premises. The Mid-Atlantic region houses 29.5% of industry establishments, with New York accounting for 19.6%. The industry thrives in large metropolitan areas that are densely populated because the more concentrated the population is, the more likely individuals are living in households with less open space. Households with less space are less likely to own large appliances, such as personal washers and dryers, and more likely to require the services of this industry. High industry competition, particularly in the Mid-Atlantic, boosts industry risk. The industry s low barriers to entry make it particularly attractive, but because it is already serving a saturated market, revenue per operator Laundromats 19.6 0.2 5.2 0.3 1.5 is already stretched thin. Furthermore, industry revenue is projected to fall at an annualized rate of 2.0% to $9 billion in the five years to 2018. Because Laundromats are typically small independently owned businesses, increased risk will drive demand for accounting services, particularly in consulting services. Rental vacancy rates are another significant Additional factor States that influence (as marked the on map) risk associated 1VT with 2 NH the industry. 3MABecause 4 RIthe industry 1.4 primarily 1.8 targets 6.8 renters, when 0.0 rental vacancy rates increase, the industry 5 is negatively CT 6 7 8 9 affected. Furthermore, low interest rates are expected to push rental vacancy rates upward because financing a home will become cheaper. Rental vacancy rates are expected to grow from 9.0% in 2013 to 9.7% in 2018, posing a
WWW.IBISWORLD.COM August 2013 6 About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit www.ibisworld.com or call 1-800-330-3772. threat to the industry. To this end, industry participants could hedge this risk by providing additional services, such as food and beverages, in order to differentiate themselves from competitors. Risk and reward The Mid-Atlantic region is home to a variety of risky industries. Whether risk is due to high internal competition, high import penetration, stagnant technological innovation or even excessive sensitivity to external drivers, these threats pose potential risks that can ultimately affect an industry s outlook. Identifying these potential weaknesses can better prepare accountants during an audit or add value in a consulting role by preparing and educating clients to face upcoming threats and opportunities. Contact: Savannah Haspel VP, Public Relations IBISWorld Phone: 1-310-866-5044 savannahh@ibisworld.com www.ibisworld.com
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