Retailing & Chain Stores OVERVIEW
Retail, with nearly 15.7 million employees in America alone (about one out of 10 people in the workforce), is one of the largest industries in the world.
Retail sales in the U.S.
totaled an estimated $6.26 trillion (on a broad basis) during 2019, according to Plunkett Research, up about 4% for the year, and up dramatically from only $4.0 trillion during 2009.
Total sales were $6.02 trillion in 2018 according to the U.S Census Bureau.
(Sales at stores selling general merchandise, apparel, furniture and specialty items, referred to as “GAFO,” totaled $1.30 trillion in 2018.
GAFO is an important distinction.
In contrast, retail sales of all types are considered to include automobiles, gasoline and restaurants.) Factors that will impact the retail sector in the U.S., Europe and most Developed Nations: · In the U.S., a very low unemployment rate and a strong economy, as of late 2019, point to a reasonably good retail environment in 2020.
Nonetheless, rising interest rates may make consumers cautious when purchasing big-ticket items.
· Consumers are less interested than in the past in buying clothing and more interested spending on travel, experiences, automobiles and home remodeling or repairs.
“I want great experiences and memories, not more things,” has become a popular line of thought among younger consumers.
· Consumers are benefitting greatly from reduced gasoline prices worldwide.
Retail, with nearly 15.7 million employees in America alone (about one out of 10 people in the workforce), is one of the largest industries in the world. Retail sales in the U.S. totaled an estimated $6.26 trillion (on a broad basis) during 2019, according to Plunkett Research, up about 4% for the year, and up dramatically from only $4.0 trillion during 2009. Total sales were $6.02 trillion in 2018 according to the U.S Census Bureau. (Sales at stores selling general merchandise, apparel, furniture and specialty items, referred to as “GAFO,” totaled $1.30 trillion in 2018. GAFO is an important distinction. In contrast, retail sales of all types are considered to include automobiles, gasoline and restaurants.)
Competition among retailers has never been tougher. A retailer without a significant competitive advantage doesn’t stand a chance. Superstores are battling each other on every major corner, while internet marketers are consistently taking market share away from stores. Some consumers are using stores as showrooms where they can touch and feel the merchandise, and then making their purchases at lower costs online at sites like Amazon.com. Online selling at deep discounts is even making inroads into major consumer purchases such as jewelry. An online shopping event in China known as “Singles Day,” garnered $38 billion during one day in November 2019.
Growth in online shopping has been driven by two factors. First, very fast internet, both fixed and mobile, is now widespread among consumers in all nations that enjoy reasonably well-developed economies, which makes buying online faster, portable and more satisfactory than in the past. Next, there’s the savvy marketing of online giants like Amazon.com (with more than $232 billion in 2018 revenues, up from only $34 billion in 2010), as well as the e-commerce efforts of traditional retailers such as Home Depot and Wal-Mart. These fast internet connections are extremely important, even at the office, since a large number of workers take time out to shop online from their desktops.
Analysts at eMarketer reported growth in American e-commerce sales from $515 billion in 2018 to $587 billion in 2019. (These figures do not include online travel sales or sales of tickets to events.) By 2023 sales are expected to be as high as $970 billion.
Today, both retailers and their customers are much more conservative than they were during the last, long-term economic boom that ended in late 2007. Retailers of all types have been seeking creative ways to cut operating expenses. Methods range from reducing the size of stores, to lowering the employee count, to reducing inventory exposure.
Middle class U.S. and European consumers are focused on seeking the best possible prices. This means that revenues have been strong at so-called “dollar stores” in America, and at other outlets that are known for exceptionally low prices. Elsewhere, many retailers, including department stores, are forced to offer special prices on a frequent basis.
Private-label items are generally popular, providing retailers with higher profit margins than they see on branded merchandise. Consumers are enthusiastic buyers of private-label (sometimes called store-label) merchandise, recognizing good quality and good prices.
Over the very long-term, the most exciting markets for retail industry growth may be emerging nations such as South Africa, India and Brazil. However, the development of a robust retail sector, and a related supply chain, can require many decades. Meanwhile, ecommerce is growing so rapidly in many emerging markets, that the importance of store-front retailing will be diminished. In China, many of the world’s leading retail chains have opened large numbers of stores, and new malls have been developed at a rapid clip, even in remote cities. This retail trend in China includes middle-of-the-road chains such as Nike and Starbucks, automotive centers including car dealers and tire and accessory stores such as Goodyear, as well as the world’s top luxury retailers, including Chanel, Louis Vuitton and Fendi. Elsewhere, the government in India is taking small steps to open its market to foreign retail chains, but it remains a difficult environment due to regulatory issues and supply chain problems.
Worldwide, many retail businesses outside the luxury field have repositioned themselves as providers of high-value, reasonably-priced merchandise. The retail apparel industry has been extremely challenged by changing tastes and online competition. (As with most merchandise categories, Amazon.com is expanding rapidly in online apparel merchandising.) Many fashion-conscious women have become more conservative about the amount they are willing to spend on clothing.
Personal spending has shifted toward goods and services offering quality, durability, affordability and lasting value, with less focus on the purchase of trendy items for fashion’s sake. Going forward, consumers will spend their money more wisely while using debt more carefully. Successful manufacturers, home builders, services providers and retailers will embrace this trend.
Meanwhile, a recent surge in house values and stock market indexes created a wealth effect throughout most of America, along with Canada and many other developed nations. This has encouraged consumers to spend a bit more, including the purchase of automobiles, home remodeling and appliances. When consumers spend, they want to do so with the confidence that they are using their money in a smart way, and they often want to pay cash instead of using credit cards.
Next, let’s look at how these values can be applied successfully to retail stores.