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Retail Industry In United States

Retail Industry in the future will be in more automated. The retailers who understand the need of shift towards changing customer behavior and technology will be a smash hit.

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Definition / Scope

The word 'Retail' is derived from a French word, retailer, with the prefix re and the verb tailer meaning "to cut again". Retail is generally refer to a set of activity that involves selling of goods or services to the ultimate customer for any use or consumption form various type of merchants.

The first US retailers were established on 7th April 1818; Henry Sands Brooks opened H&D H Brooks & Co. This retail company was providing ready-to were men’s suits to the American customers. Now, this company is renamed as The Brooks Brothers Group. It has 210 stores all over U.S and 70 stores in other countries.

Back then, the store was usually operated by a single person. But after Second World War there were tremendous change in this industry. The store were classified into two types i.e. store and non store retailers.

Store retailers are usually placed at a prime location where the customer can easily walk in the store. These stores usually have extensive display of merchandise and use mass media marketing in order to attract the customers. They sell the product to general public for household or personal use and some server for the institutions. Some of these store retailers even have a provision for after sales services like installation and repair. It includes departmental store, supermarket, convenience store etc where as Non store retailers sell goods and services to the customer but outside the convectional store. It includes direct marketing, online marketing, and automatic vending etc.

In today’s context, retail is a very complex field. It requires selling of diverse product like food, clothing, automobiles, and health care product in one space. Purchases of these goods are usually done directly from wholesaler. The wholesales purchase goods in large quantities from the producer and act as a mediator between producer and retailer. Later the retailers purchase the product from the wholesaler. Thus, retailer resells these products in small quantities to general public.

The retailers offer customer with multiple brands product with informative services. A retailer is usually an agent or a business person whose main objective is to sell the product based on marked price set by the merchandise to the customer. She/he performs all the marking activities, buying, selling and gathers all the information that the customer wants.

All businesses that sell goods and services to consumers fall under the umbrella of retailing, there are department stores, discount stores, specialty stores and even seasonal retailers. In some parts of the world, the retail business is dominated by smaller family-run or regionally-targeted stores, but this market is increasingly being taken over by billion-dollar multinational conglomerates like Wal-Mart and Sears.

The larger retailers have managed to set up huge supply/distribution chains, inventory management systems, financing and wide scale marketing plans.

The retail industry is segregated into two sectors: organised and unorganised retailing. Organised retailing comprises of those kind of trading activities which are undertaken by retailers who are registered for sales tax, Income tax etc. Corporate backed hypermarkets, retail chains, privately owned large retail businesses are some of the examples of organised retailing. Un-organised retailing mainly comprises of owner managed general stores, street vendors, convenience stores etc.

Industry Definition

In the North American Industry Classification System (NAICS), the US retail industry is defined by two 2-digit NAICS codes: 44 and 45. In the Standard Industry Classification (SIC) system, the predecessor to the current NAICS system, the retail industry also included food services and drinking places, now classified as a service sector under NAICS 722.

A variety retail store often sells a wide array of goods ranging from household appliances to groceries for price conscious consumers. This industry is considered an oligopoly because it is dominated by only a handful of chains including Walmart, Target, Costco, and Sears holdings just to name a few.

The profitability of firms in an oligopoly depends on its interactions with other firms and they need to consider the response of their rivals in pricing decisions.

As mentioned in Microeconomics, “In these industries, firms must develop business strategies, which involve not just deciding what price to charge and how many units to produce but also how much to advertise, which new technologies to adopt, how to manage relations with suppliers, and which new markets to enter” (Hubbard and O’Brien, 2014).

Since the types of products in this industry are identical and not highly differentiated, companies in this industry rely heavily on advertising to attract and retain customers. These chains invest tremendously in advertising, raising the cost of entry for others, giving the variety retail store industry a low ease of entry.

Each retailer tries to differentiate itself from the competition, but the strategy that the company uses to sell its products is the most important factor. Here are some different types of retailers by marketing strategy:

  • Department store: Department stores are very large stores offering a huge assortment of "soft" and "hard" goods which often bear a resemblance to a collection of specialty stores. A retailer of such store carries a variety of categories and has a broad assortment of goods at average price. They offer considerable customer service.
  • Discount store: Discount stores tend to offer a wide array of products and services, but they compete mainly on price. They offer extensive assortments of merchandise at affordable and cut-rate prices. Normally, retailers sell less fashion-oriented brands.
  • Warehouse store: Warehouses that offer low-cost, often high-quantity goods piled on pallets or steel shelves; warehouse clubs charge a membership fee.
  • Variety store: Variety stores offer extremely low-cost goods, with limited selection.
  • Demographic Retailers that aim at one particular segment (e.g., high-end retailers focusing on wealthy individuals).
  • Mom-And-Pop: A small retail outlet owned and operated by an individual or family. Focuses on a relatively limited and selective set of products.
  • Specialty store: A specialty store has a narrow marketing focus — either specializing on specific merchandise, such as toys, shoes, or clothing, or on a target audience, such as children, tourists, or oversize women.[5]
  • General store: A general store is a rural store that supplies the main needs for the local community;
  • Convenience store: A convenience store provides limited amount of merchandise at more than average prices with a speedy checkout. This store is ideal for emergency and immediate purchases as it often works with extended hours, stocking everyday
  • Hypermarkets: Provides variety and huge volumes of exclusive merchandise at low margins. The operating cost is comparatively less than other retail formats.
  • Supermarket: A supermarket is a self-service store consisting mainly of grocery and limited products on non food items. They may adopt a Hi-Lo or an EDLP strategy for pricing. The supermarkets can be anywhere between 20,000 and 40,000 square feet (3,700 m2). Example: SPAR supermarket.
  • Mall: A shopping mall has a range of retail shops at a single outlet. They can include products, food and entertainment under one roof.

Each of these has its own distinct advantages during tough economic times, the discount retailers tend to outperform the others. The opposite is true when the economy is thriving. The more successful retailers attempt to combine the characteristics of more than one type of retailer to differentiate themselves from the competition.

Market Overview

The retail sector in the United States will be experiencing shifts in the next few years. Local retailers will be downscaling their operations while European and Asian companies will be increasingly confident about entering the country as the overall retail sector continues to consolidate.

The increasing interest of European companies in the US market will concern established leaders. Ahold and Delhaize, Dutch and Belgian retail groups, announced a USD 28bn merger in June, which will allow the new conglomerate to become a bigger force in the American market. A 4.5% annual growth of household spending will provide a strong basis for the sector’s further expansion.

The situation of conventional retailers will only be becoming more difficult as the companies will have to adjust their business strategies to survive in the competition against emerging online retail companies and because of widespread smartphone and tablet usage and social media.

US is expected to have a stable period and will be able to reinforce its leadership position in the global economy. Overall, the American economy retains optimistic growth prospects. Low unemployment and business confidence will drive consumer spending. Total household spending is projected to average a 4.5% annual growth in the period until 2019.

The retail sector will grow in line with the other industries to retain a similar proportion of the country’s GDP. US will be among few highly developed countries which will not face a serious threat of ageing population: birth rate is expected to stay flat and more working-age immigrants will be joining the labour force.

This report is in depth analysis of the variety retail store industry as per the SEC code of 5331. The purpose of this report is to assess and define the attractiveness of this industry.

All businesses that sell goods and services to consumers fall under the umbrella of retailing, there are department stores, discount stores, specialty stores and even seasonal retailers. In some parts of the world, the retail business is dominated by smaller family-run or regionally-targeted stores, but this market is increasingly being taken over by billion-dollar multinational conglomerates like Wal-Mart and Sears.

The larger retailers have managed to set up huge supply/distribution chains, inventory management systems, financing and wide scale marketing plans.

Companies in this industry operate physical retail establishments that sell a wide variety of merchandise, including apparel, groceries, household furnishings, and personal care products.

The companies in this industry are engaged in selling goods to the final consumer through traditional brick-and-mortar locations and online e-commerce channels. Major companies include Kmart, Target, and Wal-Mart (all based in the US), as well as Carrefour and Groupe Auchan (France), Daiso Japan, Lojas Americanas (Brazil), and METRO AG (Germany).

Individual retailers and specific sub-sectors can really struggle during an economic downturn, but the retail sector as a whole is largely protected from the effects of business cycles.

Consumers still shop retail during hard times. This is most obvious with staples such as food and clothing, but the recessions of 2000-2001 and 2007-2008 demonstrated that Americans still buy computers, cell phones, cars and other retail items even when the economy is not buzzing.

Any industry's attractiveness depends on their relative position within the industry. Since economies of scale plays an important role in it, companies must have a large amount of capital and distribution channels in order to compete in this very competitive industry.

The fact that many of the products that are sold by companies in this industry are either identical or very similar means that companies must maintain low prices in order attract customers. In addition, technology continues to play a large part in the variety retail industry and hence in order to succeed, companies must invest in cyber security and online retail channels to meet the needs of the customers.

Key Market Trends

Retail, with nearly 15.4 million employees in America alone (more than one out of 10 workers), is one of the largest industries in the world. Retailing was making a strong comeback in late 2014 in the United States, after a depressing drop during the recession of a few years back, while retailing has, until recently, been a significant growth industry in emerging nations including China, India, Mexico and Brazil.

The performance of the economy as a whole has a great impact on the retailing industry. Retailer profits have a close correlation with the overall performance of the economy.

Looking at the trends for growth in gross domestic product (GDP), inflation, consumer confidence, personal income, savings and interest rates are extremely important when thinking about investing in the retail industry. Factors that will impact the retail sector during 2015 in the U.S., Europe and most Developed Nations:

  • Surveys show that consumers are focused on increasing their savings and paying down debt. This means that a large number of consumers wait to purchase until they can pay cash. When consumers do borrow, today’s low interest rates will be a great benefit.
  • In the U.S., a significant improvement in the employment rate and an improving economy, as of late 2014, point to a good retail environment in 2015.
  • Consumers will benefit greatly from reduced gasoline prices worldwide, at the same time, consumers in nations that rely greatly on oil exports will be hurt (e.g., Russia)
  • High stock market values and recovering house prices have improved consumer confidence.
  • A continuing slow economy in much of Europe points to a tough time for retailers there. The former fast-growth markets of China, India and Brazil are likely to face slower economic growth and difficult retail environments
  • 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.
  • Retail purchases via e-commerce are growing at a very strong rate worldwide, as more consumers have access to fast Internet connections and e-commerce firms enhance their product offerings and delivery options. Store-based retailers will face ever-greater competition from online sites, while traffic at retail malls will be disappointing.

A century ago, buying and selling were uncomplicated. The store was operated by a single person. But today due to the changing business environment, and new technological trends retail industry has become a complex world.

On 2008 retail industry hit recession phase. Many people lost their job. But in early 2010 the retail industry was back on track. E-commerce retail sales had increased by 4.2 percent and in 2017 total retails increased to 8.9 percent.

Today, Retail industry is going through transition phase. It is mainly being disrupted by two trends i.e. technology and change in consumer behavior. Many of the stores have made an announcement plan to close. Now, survival of the store depends on understanding the importance of both trends and overcoming the shift towards thrive whereas the retailers who are not willing the change will have to leave the market.

However, retail industry in U.S is one of the largest industries among other industry. In 2017, this industry has employed 20.31 millions of people and has created a market value of 3.1 trillion dollars. In addition, this industry have contributed 5.9 percent to its country’s GDP and According to National Retail Federation, the retail industry is expected to grow around 4 % in 2018 i.e. market value is expected to be around 3.2 trillion dollars.

Market value.PNGPercentage of GDP.PNG

Key Metrics

Metrics Value Explanation
Base Year 2017 Researched through internet


Market Risks

Retailers may face various risks while performing their business activity.

  1. Since there are more than 2000 retailers in U.S, there is an intense competition as these retailers offers same or similar product on the basis of price, quality and services.
  2. Today most people look for new shopping experiences so it is risk to the retailers as they need to add value like incorporating new technology and build a brand so that the customer visit the stores and have a awesome shopping experience.
  3. The retailers always look for new ideas in order to attract the customers, but some time when organizations try to change, resistance to change decreases.
  4. Today most of the retail industry in U.S uses technology so it is necessary for the retailers to maintain and improve the system continuously as technical fault leads to bad shopping experience.
  5. While shopping online, there may be loss of critical data which may impact customer services.
  6. As the retail industry in US is growing day by day so maintaining a proper supply chain is necessary.

Top Market Opportunities

The United States retail sector features the largest number of large, lucrative retailers in the world. A 2012 Deloitte report published in STORES magazine indicated that of the world's top 250 largest retailers by retail sales revenue in fiscal year 2010, 32% of those retailers were based in the United States, and those 32% accounted for 41% of the total retail sales revenue of the top 250.

The macro landscape is largely unchanged since 4Q14. The economy continues to steadily improve; fuel prices and cotton prices are down y/y; and FX rates are yet to rebound in favor of foreign currencies.

  • According to the Bureau of Labor and Statistics, the unemployment rate in April was approximately 5.4%, well below levels in 2014. Similarly, consumer confidence rose to 95.2 in April, which still stands at a solid level relative to last year.
  • For fuel prices, the average cost per gallon of $2.66 (as of May 10th) is (27)% lower y/y. On the input side (in addition to fuel), cotton is down (28)% y/y.
  • Finally, FX rates still favour the dollar, particularly the EUR/USD, down (20.5)% y/y.

Mean while, most of the retailers are using technology, there have been many cases of identity theft, critical information lost, and difficulty faced by customer while shopping online. So using advance technology like robots for online chat rooms, VR technology for better product view will create a better value and experience in order to create better the market opportunity in the future.

Market Drivers

The new government policy has reduced the corporate tax from 35% to 21 % on December 22, 2017. This significant transformation in this retail industry has increased GDP, wages and customer spending.

In today’s retail environment, there are many relevant issues and drivers that impact this industry. The most significant issues are technological changes, trends in the growing e-commerce market, political and legal issues, Inventory management, continuously changing tastes of customers and new innovative product offerings. All of these factors have a significant influence and can cause change in the broad environment.

The security of the consumer’s personal information is a top priority for the businesses in the industry. Keeping information secure and using technology to build a competitive advantage is one of the keys to economic success in today’s environment. In addition, the cost of having an information technology breach has adverse implications on all of the variety discount stores in the industry.

The direct and indirect costs associated with this event would include cost of litigation and negative impact to the brand image. For example, Target’s credit card breach was one of the largest cyber crimes in history, with 40 million customer’s credit card information effected. This issue has caused the industry to invest more in information technological security systems, in order to prevent future breaches and re-gain the trust of the consumers.

In addition, the growing E-commerce market has greatly impacted the ways consumers purchase products. Variety retail stores have noticed the trend in online shopping, which is creating more competition in the industry. Companies like Amazon that have a low cost structure, are able to undercut competitors on prices for major products.. Walmart and other companies in the variety retail store industry have expanded their services on the web to build a greater online presence that will keep them competitive

Legal issues such as an increase in minimum wage could have a severe impact on the industry. As stated in Walmart’s 10k, “if new revised labor laws, rules or regulations or healthcare laws are adopted or implemented, our financial performance could be adversely affected”. The company has a large number of part-time, hourly or non-exempt associates.

As a result, by having a majority of employees work on an hourly basis, the companies within the industry create some leverage that will allow them to efficiently increase or decrease the number of hours worked by employees relative to any changes in the minimum wage. With healthcare on the rise, firms within this industry have realized by having a majority of their employees work on an hourly basis makes them ineligible to receive full health care coverage.

Location is an important factor when operating a brick and mortar retail store – the success or failure of the store may well depend on it. Important factors to choose where to place the store include the local demographics, traffic in the area, proximity to competitive and complimentary retailers, and lifestyle. Seasonality is a general issue retailers must cope with.

Another potential issue is inventory turnover – in some areas, like grocery stores, inventory lasts a very limited amount of time.

Crime related losses are a continuing problem in retail, both from shoplifters and from employees – sectors with above average losses include gifts, books and magazines and food items.

Keeping up with trends is essential in this business in many sectors – what's popular one day can be out of vogue the next, and poor forecasting can result in unsellable merchandise.

Nearly half of retailers most believe one-stop shops like Walmart and Target will become the stores of the future. Along with adjusting to new technologies, most see these “one-stop shops” as one of the biggest threats to their retail success.

When thinking strategically about the future, most retailers highlight the importance of investing in new product development, marketing, online presence and social media.

The majority of retailers believe that online and mobile channels support—and do not erode— brick-and-mortar channels. Today, on average, about 6% of retailers’ sales are generated via mobile.

Today, on average, retailers estimate that about 10% of their sales are generated online, and that in 1-3 years from now, this figure will rise to 13% overall (or a growth of 30% in the near term).

The majority of retailers recognise that social media plays an important role in brand awareness, promotions and customer loyalty.

Industry Challenges

Stealing, shoplifting has been a serious issue in this industry even through high security measures. According to the National Retail Security survey, about 45% of the employee account for theft and 35% for shoplifting. The blunder made by the managerial and merchant deception around 12 to 5% to retail store losses.

  • Retailers usually ask for the customer credit card information on online platforms. Even through high security measure, the hacker’s steels credit cards numbers and other sensitive information. As a result, retails are still looking for better technology for safe online transaction.
  • Today customers are more demanding; customers don’t have patience to wait so the delivery of the product needs to be done more precisely at a right time, right place.

Technology Trends

These retail industries have top five technologies in today’s phase: Big data technology has been used by many retailers today. This technology has been able to improve personalized marketing, provides security to customer personal data, and helps to conduct store analytics for better store experience by providing real time feedback.

  • Many people have started using smart phone now, Mobile applications and mobile wearable’s has provided new shopping experiences. Customer can walk in the store with virtual reality goggles and try out things without touching them physically.
  • As retail shop has gone through digital transformation all the data produced from our “Internet of things” will become higher impact data for retailers. Thus, retailers will utilize this data make better personalize shopping experience by putting right product in right place at right time.
  • Many of the store warehouse have robot for supply chain and logistics. Now the companies have started using drone for the supply of product to its customer.

Regulatory Trends

Retail industry plays a crucial role in U.S economy as it support around 4.2 million jobs. Since U.S government has changed the policies, retail industry has been facing various positive and negative scenarios.

  • As the market is growing, economy today relay on various ports and channels but the policies has reduce its infrastructure plan for building roads, bridges and airports which has brought a huge chaos in the retail industry.
  • Retailers in U.S usually import goods from China, but the government has implemented 35% tariff on Chinese imports which result to increase in retail product.
  • The new government policy has reduced the corporate tax from 35% to 21 % on December 22, 2017. This significant transformation in this retail industry has increased GDP, wages and customer spending.

Other Key Market Trends

Today retail industry is shifting towards automation. This factor has brought a decline in retail employment. In 2017, retail industry just lost 101,100 jobs. There has also been an announcement plan to close 6879 stores as the shopper moves online.

The retail sector is the largest employer in the United States, consisting of over fifteen million jobs. Retail sales tend to be driven by personal income, consumer confidence and interest rates, as retail sales trends tend to resemble that of the economy at large. Large chains and stores have advantages of superior merchandising, marketing, and supply chain management.

This industry is considered an oligopoly because it is dominated by only a handful of chains including Walmart, Target, Costco, and Sears holdings just to name a few.

The profitability of firms in an oligopoly depends on its interactions with other firms and they need to consider the response of their rivals in pricing decisions.

Since the types of products in this industry are identical and not highly differentiated, companies in this industry rely heavily on advertising to attract and retain customers. These chains invest tremendously in advertising, raising the cost of entry for others, giving the this industry a low ease of entry.

Though advertising costs make it hard for new comers to get into the industry, the main barrier to entry is economies of scale. 

The companies in this industry have strong purchasing power and can attain better deals by purchasing goods in bulk. Hence can offer products at relatively low prices by using their buying power to buy goods from suppliers at lower prices than smaller stores can.

This significant barrier to entry because to be competitive in the industry a large amount of capital is required. Wal-Mart is probably the most notable player in the industry known for reaping the most benefits from economies of scale.

As the various players in this industry use low pricing tactics to try to undercut their rivals to attract new customers, as well as retaining existing customers, competition has intensified for variety retail stores.

Porter’s Five Forces

A. Threat of Substitute Products (Low to Medium): The tendency in retail is not to specialise in one good or service, but to deal in a wide range of products and services. This means that what one store offers you will likely find at another store. Retailers offering products that are unique have a distinct or absolute advantage over their competitors. As retail variety stores offer a wide selection of general merchandise, the industry is not specific enough to have a significant chance of being replaced completely, although there are similar markets.

B. Intensity of Competitive Rivalry in the Industry (High): Retailers always face stiff competition. The slow market growth for the retail market means that firms must fight each other for market share.The industry is divided in between three segments: department stores, warehouse clubs and super centers, and the dollar and variety stores. The customers in this industry are considered price-sensitive which means the retailers must continually be aware of their competitors’ pricing strategies and schemes. Money spent on promotions, advertising, and coupons influence what customer’s buy throughout the duration of sales. “A number of industry players have highlighted the seasonal nature of their business and noted that the latter months of the year leading up to Christmas are usually busier than other months. Hence, promotional deals are usually conducted during the slower business months to maintain consumer awareness and boost company sales.

C. Threat of New Entrants (Low): The retail variety store industry is highly concentrated with a high level of competition. To open a new store, there are capital requirements that must be met including a viable location to build the store or enough to purchase an existing area. While the barriers to start up a store are not impossible to overcome, the ability to establish favorable supply contracts, leases and be competitive is becoming virtually impossible. Their vertical structure and centralised buying gives chain stores a competitive advantage over independent retailers. Staying up to date with the latest technological advancements is also necessary to remain relevant in this industry, as consumers are rapidly upgrading and updating to increase convenience. Developing and maintaining a website, social media platforms, or mobile applications would also need to be accounted for when trying to enter the market.

D. The Power of Buyers (High): Individually, customers have very little bargaining power with retail stores. But as a whole, if customers demand high-quality products at bargain prices, it helps keep retailers honest. Customers power tends to be greater when the item is standardised and is available from many retailers. External factors such as this, adversely affects the attractiveness of this industry because the consumer has the option to virtually switch stores at no cost. The consumers will abandon store loyalty when they can purchase the exact product at a much lower price elsewhere.

E. Power of Suppliers (Low): Historically, retailers have tried to exploit relationships with suppliers. Suppliers that didn't meet certain quality standards were dropped e.g strict control that Wal-Mart places on its suppliers. A contract with a large retailer such as Wal-Mart can make or break a small supplier. In the retail industry, suppliers tend to have very little power but If the retailer depends heavily on a particular supplier, then the supplier is likely to influence price decisions

Market Size and Forecast

Worldwide, total retail sales were more than $22 trillion in 2014, according to a report from eMarketer.com.

Total annual U.S. retail sales have increased an average of 4.5% between 1993 and 2015, according to the U.S. Census Bureau.

This is a roundup of total U.S. retail sales from the Monthly Retail Trade Survey (MRTS), which is a figure calculated based on the monthly retail sales of approximately 3,300 major retail chains and extrapolated to the U.S. retail industry as a whole: MRTS : January, 2014 - $418.8 billion and January, 2015 - $434.2 billion

The financial condition of retailers appears strong—and growing—with retailers having a more positive outlook on the upcoming holiday season as well as overall sales than even a year ago. Despite challenges related to technology adoption and the ability to buy anything anywhere, retailers are embracing change.

They are making new investments in products, expanding their digital strategy and becoming more comfortable with social media as a tool for multiple facets of their business.

Retail sales should continue to be strong in the United States and elsewhere. Major growth drivers include online retail outlets and technology/computer services.It has never been easier for consumers to find, purchase, ship and track retail goods, which explains why online retail continues to see double-digit annual growth rates.

There is no surety what will happen to the broader domestic or international economies. Europe still faces debt crises China and Russia have slowed considerably.

Retail Sector and the Business Cycle

Consumers still shop retail during hard times. This is most obvious with staples such as food and clothing, but the recessions of 2000-2001 and 2007-2008 demonstrated that Americans still buy computers, cell phones, cars and other retail items when the economy is not buzzing.

Growth Expectations

The leading trade association for the retail sector is the National Retail Federation, or NRF. Every year, the NRF analyzes the state of retail and issues an economic forecast, which, notably, excludes car sales, gas stations and restaurants. In 2014, the NRF predicted a 3.7% rate of growth; the sector actually saw a 3.5% increase. The 2015 forecasts show a 4.1% growth, with an increase in online sales between 7 and 10%.

Consumer’s response

But something is holding back US customer as even after credit bubble of 2008 and improved job growth and reduced oil price still consumer are proving slow to respond.

Since the recession ended in 2009, U.S. real household consumption has remained well below the historical average. In the 60 years between 1947 and 2007, real household consumption grew annually by an average of 3.6 percent. Since 2008, it has been closer to 1.5 percent. Even if you exclude the recession, the average is still only around 2.3 percent.

Prior to the recession, there was a very consistent and statistically significant relationship between job creation and wage growth. However, since the financial crisis, that relationship seems to have broken down. This may be because many of the new jobs in the current recovery are low paying or part time.

Between 2000 and 2014, female labor market participation declined to 56 percent from 59 percent, and there are few signs of its imminent recovery.

Higher wages are the single biggest driver of consumption growth, yet signs of wage improvement remain mixed. Looking forward, even assuming wage growth does start to accelerate, consumers are unlikely to revert to their old spending habits any time soon. The reason: The multi-decade debt binge, which supported household consumption prior to the financial crisis, has now come to an end.

However, since the recession’s end, household debt has been growing at a much slower pace, less than one percent annualised. This means that even if wages pick up, consumers will be without the tailwind of debt-fueled consumption.

Higher consumption fuels economic growth, so there are several implications for the economy and markets if consumers spend less

Meanwhile, though the savings rate has rebounded from last decade’s lows, it remains well below the historical average and likely has further to rise given an aging population that needs to fund a longer retirement.

At the same time, given the increasing burden that an aging population will place on the federal government, the trend of transfer payments flattering consumption probably isn’t sustainable.

Finally, it’s unlikely that the typical U.S. family can return to its pre-crisis borrowing habits, considering that consumer debt-to-disposable income levels are still relatively high from a historical perspective.

U.S. consumer stocks, which have been outperforming the broader market for a number of years. Their outperformance may be difficult to maintain in an environment in which U.S. consumers struggle to regain their old pattern of spending.

Macroeconomic Forecasts (United States 2013-2016)

Indicator 2013 2014 2015f 2016f
Real GDP Growth, % y-o-y 2.2 2.4 2.5 2.6
Nominal GDP, USD bn 16,768.10 17,418.30 18,023.20 18,805.00
Consumer price inflation, % y-o-y, eop 1.5 0.8 1.7 1.9
Exchange rate USD/USD, eop 1 1 1 1
Budget balance, % of GDP -4.1 -2.8 -2.7 -3
Current account balance, % of GDP -2.4 -2.4 -2.4 -2.5

Current US Retail Sales Growth: 2.43%

United States GDP Growth Rate 1947-2015

The Gross Domestic Product (GDP) in the United States expanded an annualised 3.70 percent in the second quarter of 2015 over the previous quarter, much higher than an advance estimate of 2.3 percent, according to the second estimate from the Bureau of Economic Analysis.

Higher business spending and a quicker build up of inventories by businesses helped improve the pace of expansion. GDP Growth Rate in the United States averaged 3.25 percent from 1947 until 2015, reaching an all time high of 16.90 percent in the first quarter of 1950 and a record low of -10 percent in the first quarter of 1958. GDP Growth Rate in the United States is reported by the U.S. Bureau of Economic Analysis.

After the economic crisis in 2008, retail industry has made a huge recovery. The retail industry has rose dramatically. Although there is an announcement of closing stores and decline in employment rate still the retail industry has the market size 5,733.4 billion dollars in 2017.

Top 3 Retail Companies in the USA on the basis of revenues (2017)

Revenue detail.PNG

Market Outlook

In this changing digital world, retailers will face many challenges in order to compete in the market place as the retailers need to adapt changing customer preference and expectation. The retailers need to keep an eye on the competitors in order to stay on the market. However, the sale for 2018 is expected to grow on non store sales. Overall it is expected to increase from 10 to 12 percent.

Technology Roadmap

Trend of using technology in retail industry is increasing and will continue to play a vital role in retailing. In 2018, the retailers will use the technology effective and efficiently and try to gain maximum from it. Data security will be quite challenging as retailers collect data from the customer. Retails need to be ready all the time in order to minimize cyber security risk since cyber insurance cover only cost but does not ensure reputational risk.

Customer today is more incline toward technology. They are always looking for new shopping experiences. Using of robot, digital assistance and use of Virtual Reality technology store may convince consumer buying behavior.

Distribution Chain Analysis

Retail landscape looks quite different today than it did even ten years ago. The way that consumers make purchasing decisions has dramatically altered: they stand in stores, using their smartphones to compare prices and product reviews; family and friends instantly weigh in on shopping decisions via social media; and when they’re ready to buy, an ever-growing list of online retailers deliver products directly to them, sometimes on the same day.

The annual list of World's Largest Retail Chains always contains all of the biggest and most recognised American retailers. But even though the U.S. is considered to be the dominant country in the global retail industry, the 2015 list of Largest U.S. Retail Chains is shorter, compared to the 2014 Largest U.S. Retail Chains list. With 12 U.S. retail chains falling off, and just four new qualified additions, the 2015 World's Largest U.S.

Walmart, Costco, Kroger, Home Depot and Target remain the leaders of the U.S. retail industry. Overall, 76 of the 250 retail chains with the largest annual revenue in the world are American retailers. That means that 30% of the the global retail chains that qualified for the 2015 Word's Largest Retail Chains list are based in the U.S. That's down from 33% from the 2014 global retail revenue rankings.

All of this is according to the 2015 Global Powers of Retailing report, which is published each year by Deloitte Touche Tohmatsu and STORES Magazine

Competitive Landscape

  • Population growth and consumer spending drive demand.
  • The profitability of individual companies depends on efficient supply chain management, effective merchandising, and competitive pricing.
  • Large companies enjoy advantages in purchasing, distribution, and marketing.
  • The US industry is highly concentrated: the eight largest companies account for nearly 100% of industry revenue.
  • This is an attractive industry to participate in only if one has economies of scale so that can have a price leader strategic approach.
  • Competition is largely based around price in an industry that has many very developed companies with deep pockets.
  • The profit margins are not very impressive compared to the investment required to set up and efficient distribution system and point-of-sale .
  • Numerous opportunities for growth exist in the U.S. retail market for retail providers of all sizes, including individual direct marketers or direct sellers, small- to medium-sized franchise unit owners, and large “big-box” store operators.
  • New distribution companies are opening stores and units daily to serve a large, affluent consumer base. Within retail are numerous categories, covering everything from internet catalog sales, to auto dealers, to convenience stores, to vending machines, to clothing.
  • Fragmentation in the industry depends strongly on the specific sub-field – some, such as grocery stores are highly concentrated, while others, like convenience stores, are highly fragmented.
  • Retail has different categories – amongst them, motor vehicle dealers are responsible for 20 percent of total sales, food and beverage stores for 14 percent and drug and cosmetic stores for 10 percent.
  • The retail sector is the largest employer in the United States, consisting of over fifteen million jobs.
  • Retail sales tend to be driven by personal income, consumer confidence and interest rates, as retail sales trends tend to resemble that of the economy at large.
  • Large chains and stores have advantages of superior merchandising, marketing, and supply chain management - three things a franchise owner can take advantage of.
  • Margins generally average between 30 and 40 percent, though it depends on the industry – some, like grocery stores, have far lower margins, but rely on volume to make up the difference, while others sell far lower volumes, but rely on higher profit margins.
  • Location is a particularly important factor when operating a brick and mortar retail store – the success or failure of the store may well depend on it.
  • The business owner must choose whether to locate the store by itself, in a shopping mall, or in a strip mall, and important factors to choose where to place the store include the local demographics, traffic in the area, whether foot or vehicular, proximity to competitive and complimentary retailers, and lifestyle.
  • Seasonality is a general issue retailers must contend with – most retailers experience a large bump in revenue during the winter holiday season, with smaller bumps coming at, depending on the sector, the back-to-school period, Easter, and Mother's Day.
  • Another potential issue is inventory turnover – in some areas, like grocery stores, inventory lasts a very limited amount of time.
  • Crime related losses are a continuing problem in retail, both from shoplifters and from employees – sectors with above average losses include gifts, books and magazines and food items.
  • Keeping up with trends is essential in this business in many sectors – what's popular one day can be out of vogue the next, and poor forecasting can result in unsellable merchandise.

Competitive Factors

Since retail industry is in transition stage, retailers need to innovate new technologies and new customer experience while shopping. Thus, retailer who crosses this stage will stay in the competitive market otherwise they will have to leave the market.

Opportunities

Expanding into international and underserved markets and consolidation are the opportunities that it is most important to take advantage of due to the fact that most of revenue increases will come from expansion of the number of stores.

Innovating and implementing new technology to increase efficiency that will lead to cost saving will allow for greater profit margins or the ability to charge less while still maintaining the same profit margins.

Increasing the variety of products sold is important to draw customers to their own stores rather than those of their competitors but it is not quite as important as getting cost advantages through technology.

Threats

The increasing costs of labor due to new improved laws that are coming into effect has the most direct threat to the industry because unless it can be offset with savings from other places will decrease profit margins even more.

Losing customers to the online retail industry is the next greatest threat due to the fact that they are able to have greater cost savings because they don’t have to maintain a storefront. Cyber security threats are also devastating.

Risks

Retail establishment must overcome the following hurdles:

  • Regulatory and legislative changes and barriers including
    • Restrictions on chain retailers;
    • Restrictions on foreign investment in
      • Unfavorable taxation structures, especially those designed to penalize or keep out "big box" retailers.
  • Absence of developed supply chain and integrated IT management;
  • High competitiveness among existing market participants and resulting low profit margins, caused in part by
    • Constant advances in product design resulting in constant threat of product obsolescence and price declines for existing inventory;
  • Lack of properly educated and/or trained work force, often including management, caused in part by loss in Business.
  • Economic slowdown and oil price rebound
  • Damage to reputation/brand
  • Business Interruption due to failure to procure energy/raw material etc
  • Failure to innovate/meet customer needs and fail to forecast the changes in consumer taste and changing fashion trends
  • Distribution or supply chain failure
  • Technology failure/system failure
  • Failure to attract or retain top talent
  • Crime//Fraud/Dishonesty by employees and shoplifting
  • Lack of educational infrastructure enabling prospective market entrants to respond to the above challenges

Key Success Factors

  • The most important key success factor for this industry is the economies of scale.
  • The second most important key success factor is to manage and have wide and ever growing product range.
  • The third most important factor is the ability to effectively control inventories.
  • The last factor is building and maintaining a loyal customer base.

Through economies of scale and effective inventory control allows to enjoy greater profits than other companies in the industry or to have the same profits but a lower cost hence higher volume. The companies that are able to do these two things better will have an advantage over other companies in an industry that competes to a large extent on price.

The implications for having a wider product range increases the value of the company by being able to save time of a customer and provide convenience to shop under one roof with vide variety.

The implications for trying to create and maintain loyalty means not only providing a safe and fun environment in stores but also in making sure to keep sensitive information (credit card and debit card information should not be leaked online or offline) about your customers safe to protect the company from litigation and Goodwill damage .

Growth is dependent on both increases in sales in existing stores and ability to open profitable new stores. Increases in sales in existing stores are dependent on factors such as competition, merchandise selection, store operations and other.

Unavailability of attractive store locations, delays in the acquisition or opening of new stores, delays or costs associated with remodelling existing stores, delays or costs resulting from a decrease in commercial development due to capital constraints, difficulties in staffing and operating new store locations, and lack of customer acceptance of stores in new market areas all may negatively impact store growth and the costs or the profitability associated with new or remodeled stores.

Yet history also offers incumbent retailers some hope: industry shifts have actually tended to unfold slowly—over decades, in most cases—providing time to react. While it is true that powerful forces are at work in retail today, we believe their full impact won’t be felt for years.

(For instance, despite the e-commerce boom, brick-and-mortar stores should still account for approximately 85 percent of US retail sales in 2025. Based on Forrester Research data and McKinsey analysis)

That said, incumbent retailers can’t expect to stay successful by going about business as usual.

Key Market Players

Measured solely by revenue numbers, the U.S. is the undisputed leader of the retail industry. Wal-Mart is not only the largest global retailer, it is also the largest company of any kind in the world. According to the 2015 Global Powers of Retailing report, 76 of the largest retailing companies in the world are based in the U.S.

That's compared to 81 U.S. chains that revenues large enough to qualify them for the 2014 World's Largest Retailers list in 2014. Some of these world's largest U.S. based retail chains operate domestically, but a growing number of the larges U.S. retail chains are establishing international retail presence as well.

Walmart:

  • Founded: 1962
  • Headquarters: Arkansas
  • Employee: 1.5 millions
  • Revenue: 482.1 billion
  • Stores: 11,500 stores
  • Market value: $259,851.3 million
  • Top competitors: Target, Costco, Amazon

Sam Walton opened Walmart at the age of 44. The company offers every day low price service to its customers. Walmart is by far the largest retailer in US. According to Walmart, nearly 260 million people visit its 11500 stores every week. Last year Walmart invested $2,7 billions to promoted about 200000 people to jobs with more responsibility and higher pay.

Amazon:

  • Founded: July 1995
  • Headquarters: Seattle
  • Employee: 566,000
  • Revenue: $177.2 Billion
  • Market value: $880,056.2 Million

Amazon was founded by Jeff Bezos, his wife MacKenzie and Shel Kaphan. This company established its store and won award for top retailers both for online and offline in retail customer experience’s annual top retailers survey. They won this award because they are always innovating, pushing forward into new segments. They have also started using drone technology for delivery and Artificial intelligence. Now, the new data “one click retail” shows that Amazon is able to grab 4 percent of country total sales.

Further Reading

  1. Bls.gov. (2018). Industries at a Glance: Retail Trade: NAICS 44-45. [online] Available at: https://www.bls.gov/iag/tgs/iag44-45.htm#about
  2. [Percentage added to the Gross Domestic Product (GDP) of the United States of America in 2017, by industry (as a percentage of GDP)]. (n.d.). Retrieved August 11, 2018, from https://www.statista.com/statistics/248004/percentage-added-to-the-us-gdp-by-industry/
  3. [Retailing]. (n.d.). Retrieved August 11, 2018, from https://businessjargons.com/retailing.html
  4. [Total employed persons in the U.S. in 2017, by industry]. (n.d.). Retrieved August 11, 2018, from https://www.statista.com/statistics/200143/employment-in-selected-us-industries/
  5. Anders, (n.d.). Retail Industry Expects More Sales Growth In 2018. Retrieved August 11, 2018, from https://www.forbes.com/sites/melissaanders/2018/02/08/retail-industry-poised-for-more-sales-growth-in-2018/#2163fb744fa7
  6. Barrera, (2017, December 19). The Biggest Labor Market Trends in 2017. Retrieved August 11, 2018, from https://www.ziprecruiter.com/blog/labor-market-trends-2017/
  7. Bhushan Dhiraj, (2017, January 24). Giants Of Retail. Retrieved August 11, 2018, from http://ceoworld.biz/2017/01/24/giants-retail-worlds-25-largest-retailers-revenue-2017/
  8. Columbus Business First, Schwartz, Diamond, & Varma, (2017, April 14). How Trump’s trade policies affect U.S. retailers. Retrieved August 11, 2018, from https://www.bizjournals.com/columbus/news/2017/04/14/how-trump-s-trade-policies-affect-u-s-retailers.html
  9. D&B Hoover. (n.d.-a). Company Profile. Retrieved August 11, 2018, from http://www.hoovers.com/company-information/cs/company-profile.walmart_inc.e82225a6f3c5e3bb.html
  10. D&B Hoover. (n.d.-b). Company Profile. Retrieved August 11, 2018, from http://www.hoovers.com/company-information/cs/company-profile.amazoncom_inc.ef53c3d095de033c.html
  11. Deloitte. (n.d.). 2017 retail, wholesale, and distribution industry outlook. Retrieved August 11, 2018, from https://www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/us-cb-retail-distribution-outlook-2017.pdf
  12. GAYLOR, (2017, January). Trends and challenges for 2017. Retrieved August 11, 2018, from http://retailernowmag.com/trends-and-challenges-for-2017/
  13. KPMG. (n.d.). Top Retail risks for 2017. Retrieved August 11, 2018, from https://assets.kpmg.com/content/dam/kpmg/be/pdf/Markets/top-risks-in-retail-2017.pdf
  14. Plunkett Research. (n.d.). U.S. Retail Industry Statistics and Market Size Overview. Retrieved August 11, 2018, from https://www.plunkettresearch.com/statistics/Industry-Statistics-US-Retail-Industry-Statistics-and-Market-Size-Overview/
  15. Quatrro. (2017, August 17). Top Three Challenges Facing Retail Industry. Retrieved August 11, 2018, from http://quatrrobss.com/blog/top-three-challenges-facing-retail-industry/
  16. Schriever, (n.d.). Ranking the biggest industries in the US economy – with a surprise #1! Retrieved August 11, 2018, from https://bluewatercredit.com/ranking-biggest-industries-us-economy-surprise-1/
  17. Skorupa, (2008, August 19). Top 10 Oldest U.S. Retailers. Retrieved August 11, 2018, from https://risnews.com/top-10-oldest-us-retailers
  18. Statista. (n.d.). Number of Amazon.com employees from 2007 to 2017. Retrieved August 11, 2018, from https://www.statista.com/statistics/234488/number-of-amazon-employees/
  19. http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf
  20. What’s Holding Back the U.S. Consumer: http://www.investopedia.com/partner/blackrock/articles/investing/082915/whats-holding-back-us-consumer.asp#ixzz3kIQUPXOY
  21. http://www.multpl.com/us-retail-sales-growth
  22. http://www.tradingeconomics.com/united-states/gdp-growth
  23. Wikipedia Retail Industry
  24. http://finance.yahoo.com/q/co?s=WMT+Competitors
  25. Investopedia: long-term outlook of the retail sector compare to the broader economy
  26. NRF website


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