Introduction to the Retail Industry Retail, with more than 14 million employees in America alone (about one out of 10 workers), is one of the largest industries in the world by number of businesses and number of employees. Retail sales in the U.S. (total retail sales include the categories of gasoline, automobiles, and food service, as well as merchandise) totaled an estimated $4.572 trillion in 2011 according to Plunkett Research. Sales were $4.355 trillion in 2010. (Sales at stores selling general merchandise, apparel, furniture and specialty items totaled $1.11 trillion in 2010. This segment is referred to as “GAFO.”)
The retail industry has been challenged in America, the EU and other developed nations, thanks to the ongoing fallout from the recent financial crisis. Stores sales during 2008-11 were driven partly by deep discounting. Many retailers were forced into bankruptcy, including Sharper Image, Linens ‘n Things, Bombay Co. and mail order firm Lillian Vernon, and more will follow. Vacancy levels are high at America’s malls and shopping centers.
Negative factors that will impact the retail sector in 2012:
· Consumer debt levels are declining, but still remain high compared to historic norms. Surveys show that consumers are focused on paying down debts.
· High health care costs in America continue to be a major challenge to consumers, thus reducing discretionary spending.
· A continuation of depressed conditions in the housing market means low home equities and limits the ability of consumers to sell or borrow against their houses.
· A high level of home mortgage foreclosures continues in the U.S., with more than 8% of all residential mortgages in delinquency or foreclosure as of mid 2011.
· Persistently high unemployment levels and a very difficult environment for job seekers reduce retail spending.
· Low consumer confidence reduces spending.
· Consumers will continue to be more conservative. To the extent they are able to do so, they will be saving more while spending less. When they do spend, they want to feel like they are buying merchandise that is fairly priced, if not a significant bargain, and that the merchandise has lasting value backed up by a high brand reputation and excellent customer service.
Meanwhile, 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 stealing customers from stores. Some consumers are using stores as showrooms where they can touch and feel the merchandise, and then making their purchases at lower cost online at sites like Amazon.com. Online selling at deep discounts is even making inroads into major consumer purchases such as jewelry.
Growth in online shopping has been driven by two factors. First, the number of fast Internet connections in U.S. homes and businesses leapt to about 100 million by 2011, plus tens of millions of wireless connections, which make buying online faster and more interactive. Next, there’s the savvy marketing of online giants like Amazon.com (with more than $34.2 billion in 2010 revenues, nearly doubling over the past three years), 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 forecast growth in American e-commerce sales of 13.7% for 2011, to a total of $188 billion. This figure does not include online travel sales or sales of tickets to events. By 2014, eMarketer expects U.S. online sales, excluding travel, to reach $249.5 billion. Travel was forecast to be an additional $107.4 billion in online sales for 2011, growing to nearly $120 billion in 2012.
After a dismal 2008-09 period, retailing had stabilized to some extent by 2010, and the retail sector gained ground in 2011. Many stores were able to post revenue growth, but often only by offering significant discounts on merchandise. This means that profits are under pressure, and stores of all types have been seeking creative ways to cut operating expenses. Such methods range from reducing the size of stores to lowering the employee count to reducing inventory exposure.
In 2011, sales of luxury items made a strong comeback at many stores in America, while luxury sales soared ahead in developing markets such as China, where high-end stores including Tiffany & Co., Hermes and Gucci did very well.
Typical U.S. and European consumers are focused on buying less, and when they do make purchases, they are 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.
Coupons have made a big comeback. Big factors in this growth include the financially challenged consumer and the use of advances in technology. Mobile coupon distribution via cellphones has made a big impact. Also, the fact that consumers now use the Internet to search for and print out coupons caused significant growth. Another huge boost to coupon redemption is web sites that push special offers to members, such as Groupon and SlickDeals. The success of this business strategy has led to a massive wave of coupon site startups around the world. Many of these companies have enjoyed stellar initial success. It remains to be seen whether they can continue to lure retailers and restaurants to offer immense discounts and then split those discounted receipts with the coupon firms.
The most exciting stories in retail industry growth are in emerging nations, such as China, India and Brazil. In China, many of the world’s leading retail chains are rushing to open 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.
Meanwhile, many businesses outside of the luxury field are scrambling to reposition themselves as providers of high-value, reasonably priced merchandise. Household product makers are emphasizing lower-priced soaps and detergents, or high-value larger packages. Even companies that were already known for reasonably priced goods are repositioning. Ann Taylor, a national U.S. chain of moderately priced women’s fashion stores, hired a new designer during the Great Recession and added a selection of trendier, fashion-forward clothes at reasonable prices. Thus, it has been able to retain existing customers while attracting new shoppers who want chic clothing that fits within their restrained budgets. Competitor Talbots, Inc. has used the same strategy. This is a good example of adapting to the new retail era, since many fashion-conscious women have become much more conservative about the amount they are willing to spend on clothing. “Shop your own closet first,” is the new mantra of many American women who realize they can get more use from the fashions that they already own. Personal spending has shifted more 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 respond quickly to this trend.
When consumers spend, they want to do so with confidence that they are using their money in a smart way.
Plunkett’s Four Keys to Successful Consumer Products:
· High Perceived Value: The product must convincingly offer a high level of value and durability for the price, and give consumers confidence that their money is well and wisely spent.
· Quality and Utility as well as Fashion: Fashion will remain important, but quality will come first in the minds of many consumers. Products that offer quality, utility AND fashion will have tremendous competitive advantage over products that offer fashion alone.
· High Brand Reputation above Style: The brand must stand for a company that clearly puts customer satisfaction and high value above all else. If the brand also stands for a firm with great styling, high social values, such as eco-consciousness, or other ancillary attributes, that’s even better.
· Cheap Chic Still Has a Place: If a company wants to win the hearts of fashion-conscious, budget-conscious consumers, it must provide perky style at a moderate price—for example, cars like the Mini and the Smart. If an entire business model is based on trendy merchandise with a short useful life, then the company must make it cheaper than ever—for example, the very affordable fashions of such retailers as Sweden’s H&M, Spain’s Inditex and Japan’s Uniqlo—a company that has been so successful at selling bargain fashions that its founder is Japan’s wealthiest business person.
Perfect examples: Apple’s iPod and iPhone
ü High perceived value at reasonable prices
ü Quality, utility and style
ü High brand reputation
ü Absolutely chic
Next, let’s look at how these values can be applied successfully to retail stores.
Plunkett’s Four Keys to Successful Retailing:
· A High Value-High Quality Product Selection: Depth of selection is less important than a reasonably sized offering of products that the merchandiser has chosen because they consistently offer high value and quality.
· Very Competitive Prices: The goal here is to give the consumer confidence that the store faithfully delivers everyday low prices—meanwhile, managing the firm so as to allow the owners a viable profit margin.
· Superior Service: In-store help, follow up service, problem-solving, installation and repairs offered easily and quickly—the ability to make returns and exchanges must be part of the package, with an absolute minimum of inconvenience to the consumer.
· Seamless Integration of Bricks and Clicks: Successful firms integrate their online endeavors with their physical presence in a manner that provides the highest possible level of convenience to customers.
Great example: Costco
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Reasonable product selection, including quality store brands as well as name brands that have good reputations. However, Costco succeeds by carrying a vastly smaller merchandise selection than competitor Wal-Mart.
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Consistent, everyday low prices.
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An easy-to-find, always-staffed customer service desk. Also, rules about returns are generous and clear-cut, “We guarantee your satisfaction on every product we sell with a full refund. The following must be returned within 90 days of purchase for a refund: televisions, projectors, computers, cameras, camcorders, iPod/MP3 players and cellular phones.”
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An easy-to-use web site with in-depth customer service information. When desired, customers may order merchandise online but return it to a store; large items, upon request, can be picked up at the customer’s home for return.
Internet Research Tips:
· The National Retail Federation (www.nrf.com) offers a wealth of information regarding the U.S. retail industry.
· The International Council of Shopping Centers (www.icsc.org) offers the latest information on shopping centers, malls and retail trends.
· Retail Traffic magazine’s web site, retailtrafficmag.com, is an excellent place to read about retailers’ expansion plans, new mall developments, retail technologies and much more.
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Video Introduction to Retail Industry