For Immediate Release
Chicago, IL – August 8, 2012 – Today, Zacks Equity Research discusses the U.S. Retail, including Starbucks Corp. (SBUX), Nike Inc. (NKE), Big Lots Inc. (BIG), Deckers Outdoor Corporation (DECK), and Family Dollar Stores Inc. (FDO).
A synopsis of today’s Industry Outlook is presented below. The full article can be read at
The retail industry is highly competitive and has significant challenges. Although the U.S. economy has started witnessing a recovery, we still believe that 2012 will not fully mark the return of the retail market. Consumers are slowly regaining confidence and cautiously increasing their spending.
Moreover, consumers remain sensitive to macro-economic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn, adversely affect the growth and profitability of retail companies.
Macroeconomic Conditions: Retail is no different from other U.S. industries, which remain affected by the slow economic recovery. While the unemployment rate has decreased considerably over time, consumers are now beginning to draw out their savings to spend, hoping for some economic recovery. Though this is a positive sign, there has been a considerable rise in prices of commodities, which is making it difficult for consumers to make ends meet. On the other hand, the retailers are struggling as they are unable to pass these increased costs to consumers and their employees, given the already shrinking income levels.
Changes in Consumer Needs, Attitudes and Behavior: The growth of modern retail is linked to consumer needs, attitudes and behavior. Adapting to the sluggish economic environment prevalent over the last few years, consumer behavior has shifted to being more conservative. This has now become the normal behavior of consumers as they remain budget conscious, seeking more and more value. In the process, buyers are swiftly switching to the less expensive brands and consolidating shopping trips.
Moreover, people today prefer to cook and eat at home against their prior habits of eating out. This shift in the consumer behavior is inducing retailers to adopt various strategies to stay in competition. Retailers are offering trend-right and well-designed assortments at compelling prices, without compromising on quality, in order to drive traffic.
Higher Fuel Prices: As a new trend noticed of late, shoppers are making fewer shopping trips. This has emerged from the rise in gas prices as well as the hectic lives of consumers, while incomes are squeezed. Looking ahead, we expect this trend to continue for the next few years.
Apart from cutting down on the number of trips, shoppers also chalk out their shopping mission before stepping out. Today, consumers look for multichannel retail outlets, which offer variety of goods, rather than making separate visits for paper goods, health and beauty items, grocery, etc. Thus, retailers now need to understand the consumers’ shopping missions and get the most out of their visits by broadening their assortments with the appropriate depth, breadth and freshness to appeal to their shoppers’ missions.
Staging Stores: The waning popularity of brick-and-mortar store formats has made it essential for retailers to adopt new techniques like ‘staging stores’ to woo customers. Staging basically refers to the act of making the company’s stores attractive destinations, where people like to spend their time. One example for this is Starbucks Corp. (SBUX). The idea behind this strategy is to make shopping interesting for consumers, so that they would want to walk-in the stores, rather than shop online.
Use of Internet and Mobiles in Shopping: With shoppers becoming more and more tech-savvy these days, a new era of shopping via internet, smartphones and tablets has taken over. Today, consumers are increasingly using the tech-media to make purchases, find coupons and search for the best deals.
The rate of electronic retail shopping is expected to increase significantly over the next four to five years. To take advantage of this growing trend, retailers need to identify the best possible means of benefiting from the use of technology in shopping while implementing relevant strategies. By integrating the digital mode into the shopping experience, retailers can earn rewards in the form of increased shopper demand and greater shopper loyalty.
Shrinking Margins Raise Concerns: In the current strained economy, retailers are struggling to grow and maintain decent profit margins due to the inflated input costs, rising inventory levels, market saturation, the rise of multichannel buying, an aging population, fewer prosperous shoppers, reduced customer loyalty and the rise of digital media to influence purchase decisions.
Further, fashion obsolescence remains the key concern for retailers as this may lower the comparable-store sales and deplete margins. Some retail chains which have been struggling with margins pressures, of late, include Nike Inc. (NKE), Big Lots Inc. (BIG), Deckers Outdoor Corporation (DECK), and Family Dollar Stores Inc. (FDO).
In the fight against shrinking margins, retailers should work toward easing pricing pressures through reformulations, innovating product lines, redefining supply agreements, altering merchandise mix and boosting distribution channel tie-ups. Further, well-defined cost reduction programs along with proper implementation will help gain a competitive advantage and maintain profitable growth.
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