5 a the industry wide roe is leveling off indicating

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5. a. The industry-wide ROE is leveling off, indicating that the industry may be approaching a later stage of the life cycle. Average P/E ratios are declining, suggesting that investors are becoming less optimistic about growth prospects. Dividend payout is increasing, suggesting that the firm sees less reason to reinvest earnings in the firm. There may be fewer growth opportunities in the industry. Industry dividend yield is also increasing, even though market dividend yield is decreasing. b. Industry growth rate is still forecast at 10% to 15%, higher than would be true of a mature industry. Non-U.S. markets are still untapped, and some firms are now entering these markets. Mail order sale segment is growing at 40% a year. Niche markets are continuing to develop. New manufacturers continue to enter the market. 6. a.Relevant data from the table supporting the conclusion that the retail auto parts industry as a whole is in the maturity stage of the industry life cycle are: The population of 18-29 year olds, a major customer base for the industry, is gradually declining. The number of households with income less than $35,000, another important consumer base, is not expanding. The number of cars five to fifteen years old, an important end market, has experienced low annual growth (or actual decline in some years), so the number of units that potentially need parts is not growing. 17-6
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Chapter 17 - Macroeconomic and Industry Analysis Automotive aftermarket industry retail sales have been growing slowly for several years. Consumer expenditures on automotive parts and accessories have grown slowly for several years. Average operating margins of all retail autoparts companies have steadily declined. b. (i) Relevant data from the table supporting the conclusion that Wigwam Autoparts Heaven, Inc. (WAH) and its principal competitors are in the consolidation stage of their life cycle are: Sales growth of retail autoparts companies with 100 or more stores have been growing rapidly and at an increasing rate. Market share of retail autoparts stores with 100 or more stores has been increasing but is still less than 20 percent, leaving room for much more growth. Average operating margins for retail autoparts companies with 100 or more stores are high and rising. (ii) Because of industry fragmentation (i.e., most of the market share is distributed among many companies with only a few stores), the retail autoparts industry apparently is undergoing marketing innovation and consolidation. The industry is moving toward the “category killer” format, in which a few major companies control large market shares through proliferation of outlets. The evidence suggests that a new “industry within an industry” is emerging in the form of the “category killer” large chain-store company. This industry subgroup is in its consolidation stage (i.e., rapid growth with high operating profit margins and emerging market leaders) despite the fact that the industry is in the maturity stage of its life cycle.
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