The U.S Retail Industry - Industry Analysis Project Snapshot & Description

Ever since my late teens, the notion of retail and its industrial characteristics have deeply intrigued me, in addition to being an integral part of my personal, professional and academic life. My father began his career in India’s then booming apparel retail industry and has worked for the leading textile giants in the country, during his 30 year tenure. Many a time, I found myself assuming an apprentice’s role during family visits to malls, department store outlets, flagships and on shopping trips across a rapidly developing Mumbai city. That ignited an acute interest early on and I grew to graduate with a degree in business management, mastering in global retail and marketing. My desire to advance my learnings in this field grew even stronger after I exposed myself to the United States’ gargantuan retail industry, along with its many dynamic forms. I spent my summer interning in the retail arm of a global architecture firm headquartered in San Francisco where I was largely involved in researching several global retail brands.   

While I understand that the scope of the retail industry in itself is very vast, I will work to narrow down the focus of my project accordingly. I have a specific interest to study the evolution of this industry and identify the impacts of modern trends and developments in retail, such as e-tailing, online shopping, and mobile stores. Etc. In doing so, through my project, I wish to address the following questions:         

1.      How has the rise of online retail giants such as Amazon.com altered the general trends in the industry?

2.      What effects do mobile shopping and social media have on consumers’ purchase preferences?

3.      How do traditional ‘brick and mortar stores’ fare in this current scenario and are they transforming themselves to compete?

4.      As search becomes more personalized, advertising becomes all the more targeted. How are today’s leading retailers leveraging this unique marketing opportunity?

5.      As large retailers aim to attain sustainability in their long term operations, how can we perceive this industry to shape up in the future?

Analysis

I aim at evaluating this industry and answering these questions by applying the following concepts of Industry analysis:

·         Porter five forces analysis: Using the fundamental tool will allow me to gauge the US retail industry at its fullest, from a rather broad and an all-encompassing perspective.

·         STEEPLED Analysis: The reinforced form of the PESTLE Analysis, this framework is devised to include the Political, Economic, Social, Technological, Legal, Environmental, Ethical and Demographic aspects any industry.

·         CAGE Framework: Although the CAGE Framework is primarily used to identify Cultural, Administrative, Geographic and Economic differences between countries for crafting international strategies, I believe that I can adapt it to understand the global nature of retailers in the United States. As major US retailers expand across international borders, it is crucial to develop an overview of their overseas strategies, localization efforts and performances respectively in order to better understand their respective positions.

Description

The retail sector is enormous – within the United States it includes one million stores and accounts for four trillion dollars in revenue in 2013.  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.

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 unsaleable merchandise.