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WIKI ANALYSIS
The retail industry is the second largest industry in the U.S. (responsible for approximately 12% of all US employment) with over $3.8 trillion in sales annually ($4.2 trillion if food sales are included). Although the vast majority of all retail stores in the U.S. (approximately 90%) are single-store businesses, however these single-store businesses account for substantially less than half of all retail sales. Thus the majority of the revenue in the retail industry is generated by companies that run retail "chains". The biggest retailer in the world is Wal-Mart, which generated over $344 billion in revenue in its last fiscal year.
There are two basic forms of retailers: wholesale and specialty. Wholesale retailers, also known as "big box" retailers or department stores, are companies like Wal-Mart and Target that sell a wide variety of items at discounted prices. Specialty retailers offer a limited scope of products in order to serve a smaller market more effectively, such as consumer electronics retailers like Best Buy or office supply retailers such as Staples.
Retail Industry Sectors
The retail industry can be divided into a number of smaller sectors or "sub-industries":
Department Stores
Discount Stores
Off-Price Retailers
Off-price retailers purchase retail merchandise directly from suppliers, taking advantage of manufacture overruns and canceled orders to acquire retail goods at an opportunistic discount. They also utilize "packaway", items purchased at discount at the end of a season, then held in inventory until the next appropriate season for sale. The off-price retail sector as a whole is growing faster than most other retail segments, with a CAGR greater than 10% over the past five years, well above the 4% average annual growth rate for apparel retail.
- TJ Maxx and Marshall's
- Ross
Apparel
- The Gap
- Abercrombie & Fitch
- Guess? (GES)
- American Apparel (APP)
- American Eagle Outfitters (AEO)
- Aeropostale (ARO)
- Urban Outfitters
- Pacific Sunwear
- J. Crew
- AnnTaylor
- Phillips-Van Heusen
- Lululemon
- Revenue - Old Navy
Consumer Electronics
Home Improvement
Office Supplies
Pharmaceuticals
Home Products
Sporting Goods
Academy
Footwear
Jewelry
Retail Industry Trends
Wal-Mart's Impact
Wal-Mart is by far the largest retailer (and company) in the U.S. and the world in terms of revenue generated. The company operates a chain of discount wholesale stores that emphasize incredibly low prices and efficiency that enables the company to offer such low prices. Wal-Mart's successful business model has pushed down prices throughout the retail industry, forcing companies to adapt their business models in order to effectively operate in the new landscape, and forced small single-store businesses out of the markets which Wal-Mart enters.
Big box retail stores account for only a small percentage of the total number of stores in the total 'General Merchandise Stores' sector in the US. In 2008 there were 35 big box retailers with 3,451 outlets. Despite this, the industry still generated revenue of approximately $335.0 billion over the year which equates to more than half of total revenue in 'General Merchandise Stores' sector in the US [1]
Wal-mart is the largest player in the industry in the US. The chain was founded by Sam Walton in 1962. It has become an important figure in social, economic and political debates, from health care to immigration to gun control. Despite the downturn in the US, Walmart still grew in 2008 with financial turmoil seeing struggling consumers substitute high end retail with the relatively less expensive alternatives offered by Wal-Mart. [2]
Increasing Importance of E-Commerce
In the past ten years the Internet has changed the landscape of the retail industry. The Internet has enabled consumers to shop for and purchase goods online from the comfort of their home. This type of E-Commerce has created successful companies such as Amazon.com and eBay. Also, E-commerce has added new dimensions to traditional retailers as nearly every major company in the retail industry sells products through their own website (note that some retailers choose to run E-commerce operations in-house while others outsource the operations to E-commerce specialists). The profitable e-commerce market has served as a launch pad for companies like GSI Commerce (GSIC) that provide e-commerce services for retailers. These companies design, create and manage e-commerce sales for retailers that do not wish to run online sales in-house. E-commerce currently represents approximately 2.7% of total retail industry revenue ($104 billion annually), a number that has steadily grown in past years. As younger, Internet-savvy customers mature and Internet-usage becomes more widespread over time among consumers of all ages, E-commerce will become increasingly relevant.
Product Cycles
One of the most influential growth factors for retailers is product cycles. In many cases, newly innovated products (such as new flat-panel TVs or an updated line of iPods are released with high prices to maximize profits early on. Competition between consumer retailers and increased supply from manufacturers drive down prices over time until each retailer makes little profit by the end of a product's life cycle. How quickly product cycles mature drives the profit a retailer makes. There are many product cycles co-occurring at any given point in time, and these product cycles vary between retail industry sub-sectors; for example, an important product cycle in consumer electronics retail currently is flat panel HDTVs).
Credit Crunch
The 2007 credit market squeeze caused by the subprime lending crisis has hurt consumer confidence which has begun to make significant negative impacts on retail sales. A range of retailers such as Target, Office Depot, Dick's Sporting Goods, J. Crew Group (JCG), and AnnTaylor Stores (ANN) have reported falling same store sales and challenging selling environments due to the economy's struggles.
Also, trouble in the US housing market has intensified due to the credit crunch. Downturns in the housing market hurt retailers like Home Depot and Lowe's directly, but also hurts consumer electronics retailers like Best Buy and Circuit City because consumers who have recently purchased a home are more often to purchase new home theater and entertainment products to complement their new residence.
Importance of Retail Sales
The Retail Sales report is an important leading indicator because it gives us a glimpse into what the upcoming quarterly Gross Domestic Product (GDP) number—a number that gives an idea of how fast the economy is growing or shrinking—might look like. Consumers make up approximately 70 percent of the United State's GDP. So if consumers are out there spending their money, GDP will probably show that the economy is growing, and vice versa.
Retail Sales and Unemployment
The Retail Sales report also gives a glimpse into what the future unemployment picture might look like. Unemployment tends to rise when the economy slows down or shrinks, and it tends to decline when the economy is strong and growing. Retail Sales affecting the GDP gives an idea of how the economy might be performing, it gives an insight into how the GDP numbers would affect unemployment.
Retail Sales and Company Profits=
The Retail Sales report provides a crucial glimpse into how individual retailers will most likely perform in the future. When retail sales are up, you know that earnings and profits at retailers like Walmart (NYSE: WMT), Home Depot (NYSE: HD) and Macy's (NYSE: M) are going to be growing. Conversely, when retail sales are down, earnings and profits at most retailers are going to be down. However, Walmart does seem to be one retailer that is able to buck that trend—thanks to its position as a discount retailer that thrives during difficult economic times.
References
- ↑ " Big Box Retail Stores in the US" IBISWorld, 2009
- ↑ "Wal-Mart Stores Inc " New York Times, 2008
Companies in the Retail Industry (268)
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