Tuesday, June 16, 2009

Characteristics of Retail Industry

Retail Industry: Small to huge store
The spectrum of Retail Industry is quite wide in nature. Retail serves consumers through a small grocery store to a huge departmental store. Retail Industry is heavily dependent on consumer spending. In fact 2/3 of US GDP is coming from Retail business. Retail is the second largest industry in US. It has employed 23 Million people. During economic slow down consumer spending decreases and it poses threat to the Retail industry. Consumers confidence is one of the key drivers of the industry.

Decline in Small Stores
It is observed that small independently owned stores are gradually loosing their foothold in the market place. These stores are generally called “Mom and Pop” stores and they offer limited merchandise to the consumer. These store are facing stiff competition from the large departmental stores or superstores and in this process they are closing down their shutters. In many locations the arrival of a superstore has forced nearby independents out of business. In the book selling business Barnes & Noble superstore or Borders Books and music usually puts smaller bookstores out of business. This is a major characteristic prevailing worldwide. But it is also true that many small independent outlets still thrive by knowing their customers better and providing them with more personalized service.

Internet and E-Commerce
Internet, the ubiquitous medium has opened a new avenue in front of the Retailers. It has offered an opportunity to the consumers to shop from the home. As it stands today overall Retail sales through internet may not be that significant but gradually it is gaining popularity amongst consumers. Amazon.com is successful in this E-commerce domain.

Repositioning of Departmental Stores
The appeal of big departmental store is in the wane and they are trying to reposition themselves. They are repositioning their product lines to survive in this highly competitive market.For example, A departmental stores which is supplying general merchandise to the consumer is changing themselves to a giant apparel store.

Rise in Discount stores
Supremacy of Discount store is also one of the distinct characteristics of Retail Industry today. Discount stores offer money back guarantee, every day low price etc. to lure customers. They also provide floor help and easy access to the merchandise to facilitate the consumer. Wal-Mart the worlds largest Retailer comes under this category of Retail store.

Category Killers
There are Retailers who actually concentrate on one particular product category and grab a lion’s share of that market and outperform their competitors. They are called Category Killers. Toys R Us (Toy market), Home Depot (Home Improvement), Staples (Office Supplies) are the examples of such Retailers who have grabbed a major market share in that product category and they have forced a reduction in the number of players in that product segment. This is also a distinct trend observed in the current Retail market. Ten years back there were number of players in the toy market and no one was controlling more than 5% of market share but now the number of players has come down to six and Toys R Us is enjoying 20% market share.

Direct Marketing
With the advancement of technology, Retailers have found another sales channel through which they can reach the consumer and this is known as direct marketing. Direct marketing has their root in direct mail and catalog marketing (Land’s End and LL Bean). It includes telemarketing, television direct response marketing (Home shopping network, QVC). Although an overwhelming majority of goods and services is sold through stores and non store which indicates Retailing is growing at a faster rate. Direct selling worth about $9 Billion industry with around 600 companies selling door to door. Avon, Electrolux, Southwestern company, Tupperware and Mary key cosmetics are the examples who have adopted this strategy successfully.

Demographic Changes
Retail industry is impacted by the demographic changes. As a result of this change taste of the consumer is undergoing a change and it creates a demand for certain products. World wide Retailers are keeping a close watch on this change and they are trying to realign themselves with this change.

Mergers and Acquisitions
Retailers who want to dominate the market place have adopted the strategy of mergers and acquisitions. This is also one of the distinct trends in Global Retail Industry today. Instead of achieving an organic growth Retailers can grow significantly with the help of mergers and acquisitions. This helps them to occupy more shelf space in the market place. As the volume increases they are establishing better control over their suppliers and they are reducing the procurement cost and in that way they are boosting their profitability. This is driven by the economic growth factors, size, revenue pattern and the customer demand. Sears and Land’s End merger is one of the significant mergers which has happened in recent times. Another important example would be Nikes acquisition of Hurley, a well known surfing brand. This has helped Nike to enter in to a new market segment.


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