Introduction to the Retail Industry
Retail, with nearly 15 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. totaled an estimated $4.920 trillion during 2012, according to Plunkett Research.
Total sales were $4.648 trillion in 2011 according to the U.S Census Bureau, and $4.308 trillion in 2010. (Sales at stores selling general merchandise, apparel, furniture and specialty items totaled $1.166 trillion in 2011. This segment is referred to as “GAFO,” which 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 during 2013 in the U.S. and Europe:
· Surveys show that consumers are focused on increasing their savings and paying down debts.
· Persistently high unemployment levels and a difficult environment for job seekers are reducing retail spending.
· Price-sensitive consumers will continue to be more conservative. When they do spend, they want to feel like they are buying merchandise that is fairly priced, if not a significant bargain.
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 2012, plus tens of millions of wireless connections, which makes buying online faster and more interactive. Next, there’s the savvy marketing of online giants like Amazon.com (with more than $48 billion in 2011 revenues, by far one of the fastest growing companies in the world), 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. Globally, the number of Internet users has passed 2.4 billion.
Analysts at eMarketer reported growth in American e-commerce sales from $188 billion in 2010 to $194.3 billion in 2011. This figure does not include online travel sales or sales of tickets to events. For 2012, the firm forecasted U.S. e-commerce retail to reach $224.2 billion, and for 2015 sales are expected to hit $270 billion. Travel was forecast to grow 11% to reach $119.2 billion in 2012.
After a dismal 2008-09 recession, retailing has bounced back. However, retailers are much more conservative. Stores 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. Meanwhile, sales of luxury items have made a strong comeback at many stores in America, while luxury sales have been surging in recent years in developing markets such as China, where high-end stores including Tiffany & Co., Hermes and Gucci do 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.
Sales of private-label items are generally growing at a faster rate than those of name brands. At Kroger, for example, house-brands make up 40% of products sold, up from 34% in 2010. Kroger stores stock, on average, about 11,000 private label items. Overall, private-label sales (in supermarkets, drug stores and mass merchandisers) grew 3.92% over the previous year, to reach $92.7 billion in the U.S. in 2011, according to the Private Label Manufacturers Association.
Coupons have made a big comeback. Big factors in this growth include the financially challenged consumer and the use of advances in technology. 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. The success of this business strategy has led to a massive wave of coupon site startups around the world. 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. The government in India is taking steps to open up the Indian market to foreign retail chains also.
In the U.S. and Europe, many businesses outside of the luxury field have repositioned 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 have changed strategy to some degree. Ann Taylor, a national U.S. chain of moderately priced women’s fashion stores, hired a new designer during the 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. This is a good example of adapting to the new retail era, since many fashion-conscious women have become more conservative about the amount they are willing to spend on clothing. “Shop your own closet first,” is the new mantra of some 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.
· 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 exciting style at a moderate price. If an entire business model is based on trendy merchandise with a short useful life, then the company must strive to offer very high value—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
· High perceived value at reasonable prices
· Quality, utility and style
· High brand reputation
· 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 along with 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
· 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 its competitor Wal-Mart.
· Consistent, everyday low prices.
· 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.”
· 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.
Video Introduction to Retail Industry