Risks and Opportunities in the Retail Industry

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US Retail Industry: Risks and opportunities

The retail industry is being shaped by new forces and trends. In the past several years it has seen very fast growth. Apart from technology, operational efficiency is also important for growth in retail. The global retail sales that had reached $20.8 trillion in 2015 are expected to have grown to $28 trillion by 2020. In US too, retail has seen consistent growth and grew 2% over 2014 in 2015. 2015 retail sales in US equaled $5.3 trillion. A major part of the retail transformation is taking place online. E retail grew by a whopping 23% in 2015 and in the coming years too a lot is expected to happen online.

Not just this, retail is also the largest employer in US which employs more than 29 million people directly. If we add the indirect figures and include the marketing, security and technology part then the figure would jump to 42 million. In this way it generates 822.5 Billion in the form of labor income (2012 figures). As per estimates, it contributes to two third of the US GDP (1.2 Trillion dollars).  However, to get a real estimate of the depth and breadth of the US retail industry is difficult. While things keep changing with changing industry trends and economic circumstances, people will keep buying whatever be the circumstances. Even in 2009, retail sales had touched $4 trillion. Small businesses constitute a sizable part of US retail. They employ 40% of the workforce.

Strengths:

  • Large size
  • financially strong
  • largest private employer – employs a  large workforce

Weaknesses:

  • HR management not very well by some major retailers: Walmart and Amazon fair poorly
  • High work pressure on staff
  • Increased competition has resulted in constant changes in pricing
  • Higher competition means more pressure related to pricing and weaker margins

Opportunities:

  • Use of  a digital strategy to transform  customer experience
  • Use of artificial intelligence and cognitive intelligence for better customer service
  • Better economic  conditions mean higher consumer spending

Threats:

  • Growing competitive pressure from internal and external players.
  • Changing demographic patterns causing change in consumer buying patterns
  • Economic uncertainty and regulatory pressures

Trends shaping the retail industry: Opportunities

Technology:

Technology will drive the growth of the retail industry. However, the focus of the retail industry must be on operational excellence to be derived through the use of technology. Apart from consumers’ preference, the focus must be on operational excellence. Rather than pushing sales, the brands must focus on engaging their customers by focusing on customer engagement. The focus has to be on crafting a consumer experience that the shopper’s love. Retailers would need to think beyond technological innovation to what the customers are going to love and adopt. Retail brands must think how they can use augmented reality, Artificial Intelligence, Robotic Process Automation, Wifi and Cognitive Intelligence Technologies to better cater to customer needs and preferences.   Other important things that are going to impact the condition of retail are Internet of things, cloud computing and distributed intelligence. Apart from it, the retailers will also need to focus upon the privacy and security concerns. So that they can thrive in 2017, the retailers will need to be both agile and flexible. Mobile payment options have become important more than ever for the millennials and Gen Z. Similarly, in store use of technology to help the consumers find what they are looking for is also important.

Economy:

The labor market and the economic conditions both are favorable and it means growth and profits for the retail sector.  Growth in disposable income and hourly income has strengthened consumer confidence and that means better business for the retailers. However, on the one hand while the growing consumer confidence is a positive sign, the retailers will also find themselves amid tight competition. Growth in digital technology will also mean that more and more players will enter the market. Most of this competition is coming from the small players. The changing dynamics will add to the competition in the market. Several non US brands are all set to increase their presence in the market. Low price international retailers like Primark, Aldi and Lidl are trying to gain a strong foothold in the US market. Lidl, A European grocery chain, is planning to open as many as 600 stores across US and 100 of them will be opened by mid-2018. Another German discount grocer Aldi has already created an impressive presence in US with its more than 1300 stores. Now, Lidl is trying to set itself apart from Aldi but will need to do a lot to catch up. Amid this level of competition, the US retailers will need to focus on the millennial generation and connect with it to earn from the opportunities that the changing economic scenario presents.

 Consumer mindset and preferences:

Product uniqueness will gain the upper hand when compared to marketing. Product quality and trust in the brand are important to drive sales. Brands will need to focus upon providing the right product to the customers at right price. Even great technology cannot be a substitute for poor quality products. So, while retail brands must focus on providing superior products, they can augment their offering with their digital assets and distribution channels. Consumers are expecting more from retail brands. Apart from reducing the friction in sales, they want the retailers to deliver products to their doors in no time and at least delivery costs. However, retail brands can capitalize on these trends. Customers also want personalized interactions with the brands. Brands must use customer insights to engage consumers better.

Risks in the retail environment:

Apart from the growing opportunities, many of which are driven by the technological and economic changes, the retail environment will also remain full of risks.

Competition: The pinch of growing competition will be felt by both the small and big brands. Several non US brands are already trying to steal the scene from the US brands. Apart from that e-retail will add to the intensity of competition in the retail industry. The convenience and breadth of products offered by Amazon is already difficult to beat for the traditional retailers. New non US brands entering the retail scene will offer more compelling prices which may make the situation tougher for the US retailers. The small brands are also making use of digital technology to deliver better value to their customers.

Changing consumer trends: Changing consumer trends can also affect the retail brands adversely. Technology consumption is growing which means increased sales of the technological products.

Economic stress or uncertainty can also be a major risk factor. Particularly for the US brands that are operating internationally, a stronger dollar can mean lesser profits.

Regulatory concerns will also continue to trouble the retail sector. In technology too, the privacy and security related risks will continue to make it difficult for the retail brands.

Sources:

  1. https://www.franchisehelp.com/industry-reports/retail-industry-report/
  2. https://www.businessinsider.in/a-german-grocery-chain-with-the-power-to-cripple-aldi-whole-foods-and-trader-joes-is-about-to-invade-america/articleshow/57170910.cms
  3.  2017 retail, wholesale, and distribution industry outlook: Industry Insights by Deloitte