World scenario of retail sector

Retail industry is a sector of the economy that is comprised of individuals and companies
engaged in the selling of finished products to end user consumers. Multi-store retail chains in
the U.S. are both publicly traded on the stock exchange and privately owned.

Size of the Retail Industry:

According to the latest annual report from the U.S. Census Bureau (calendar year 2009), the
total amount of sales for the U.S. Retail Industry (including food service and automotive) was
$4.13 trillion. This was the 2nd consecutive annual decline for the retail industry, both an
effect and cause of the U.S. economic recession overall.

Most major multi-store retail chains had sales declines in the first part of 2009, but saw
improvements toward the end of that year, and the upward trend has continued into 2011
Growth rate- 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
The Largest Retail Industry :

Measured solely by revenue numbers, the U.S. is the undisputed leader of the retail industry.
Wal-Mart is not only the largest global retailer, it is also one of the largest companies of any
kind in the world. According to Fortune Magazine's 2010 "Global 2000" list, 54 of the largest
companies of any type in the world are U.S. based companies with that are solely retail
companies or companies with significant retail operations

Each country has a retailer that is its biggest and best, and when comparing the biggest and
best retail chains from each company, the Global Powers of Retailing list emerges. From the
13th annual “Global Powers of Retailing” report compiled by Deloitte Touche Tohmatsu and
STORES Magazine, this is the list of the retailers who are leading the way for the retail
industry in each of their 32 homelands.

The “Global Powers of Retailing” list ranks global retailers according to total revenue. In
2010 the list reflects the revenue that was generated in 2009, which was the early part of an
intense global retailing recession. Despite that, the changes from the last Global Powers list
are surprisingly not all that dramatic.

Most of the world’s largest retailers positioned in the top half of the list moved very little in
their rankings, if at all. Wal-Mart is still, by far, the largest retailer in the world. France’s
Carrefour is still #2. Germany’s Metro AG overtook the United Kingdom’s Tesco chain and
claimed the #3 position on the list. The top retailers in the top countries managed to maintain
relative stability on the global retailing stage.
There were a few big notable shifts in the world’s largest retailers, however. Norway and
Lithuania became global powers of retailing, joining this year’s list at #88 and #221,
respectively. Iceland fell off the list completely after its Baugur Group became a recession
casualty.

Russia fell from the #15 position to the #107 position, the largest drop for any one country.
China’s ranking fell from #63 to #90, and a new largest retailer emerged in that country.
Spain, Finland, Chile, South Korea, and Brazil also had new retail companies assume the
position of being their country’s largest retailer.

Trends of retail industry:

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

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. Thank you.

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

characterstics

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