Retailing and the period leading up to the Great Recession: a model and a 25-year financial ratio analysis of US retailing Joel R. Evans* and Anil Mathur 1 Department of Marketing and International Business, Zarb School of Business, Hofstra University, Hempstead, NY 11549, USA (Received 6 December 2012; final version received 29 April 2013) Today, more than ever, retailers need to analyze the key solvency (liquidity) and efficiency financial ratio measures that affect how well their firms perform and to engage in long-term activities that will lead to improved results. Clearly, the recent ‘Great Recession’ has had a significant negative impact on retailers worldwide. Yet, an important question remains largely answered: Was the retail industry a major contributor to the events leading up to the economic crisis or was it an affected bystander shaken by the recession? This paper addresses the question for US retailing, the largest retail economy in the world. Although there has been considerable research on some aspects of the performance of the industry and individual firms, no prior studies exist that comprehensively examine the financial ratio performance of the totality of US retailing over time. Here, the financial performance of US retailers in 54 different sectors is analyzed for the 1982 – 2007 period using a model and data derived from Dun & Bradstreet’s annual Industry Norms & Key Business Ratios. Results show that for many financial measures – such as the current ratio, liabilities to net worth, return on sales (profit margin), return on assets, financial leverage, and return on net worth – US retailing’s financial performance has been in a steady decline for decades. The model introduced here is largely validated. Keywords: ratio analysis; retail performance; financial ratio model; Great Recession; long-term trends; tracking retail industry results; overall averages versus trends Introduction It is widely acknowledged that financial performance must be measured over time to best assess success (e.g., see Clark and Ambler 2011; Furrer, Alexandre, and Sudharshan 2007; Lim and Lusch 2011; Petersen et al. 2009; Srinivasan and Hanssens 2009). In discussing the metrics challenge, Patterson (2007) observed that it is essential to select measures that enable firms to engage in strategic decisions that are based on facts in order to better align those decisions with the resources that have the most effect on financial performance. Yet, despite the extent of the literature on measuring retail effectiveness, there has been insufficient research on the longitudinal analysis of financial ratio results. Why is this under-researched topic (e.g., see Peterson and Balasubramanian 2002) so critical? First, to cite an old management adage quoted by Peterson et al. (2009, 95): ‘You can’t manage what you don’t measure.’ Second, firms are under pressure to show that they practice sound financial fundamentals in tight economic, cost-driven times. Third, this means that measuring and tracking financial performance is imperative. Fourth, the literature has been insufficient in terms of analyzing financial performance in actual settings, with a lot of conceptualized models undergoing little testing. Fifth, the literature q 2013 Taylor & Francis *Corresponding author. Email: joel.r.evans@hofstra.edu The International Review of Retail, Distribution and Consumer Research, 2014 Vol. 24, No. 1, 30–58, http://dx.doi.org/10.1080/09593969.2013.801360