Tag Archives: Retail

March 2014’s Retailiation

First of all, no, that is not a typo in the title of this post. The fact of the matter is that retail sales have reached a seasonally adjusted $433.9 billion in the month of March. This is a growth rate of 1.1%. This is the best monthly gain since September 2012. That is 18 months, or a year and a half ago. The Wall Street Journal predicted a .8% increase last month. This was based on February’s gain of .7% in the retail area. To put this in perspective retail spending has grown 3.8% since March 2013. The Washington Post reports that two of the larger contributors to this growth were in automobiles and furniture. Automobile sales rose 3.1%, and general merchandise grew 1.9%. An example of general merchandise would be Wal-Mart or Target. This is the largest that general merchandise has seen since March 2007, which was before the recession.

According to the New York Times, we are in a “Great Moderation”. This means that we are experiencing the same steady growth in economic activity and jobs that we saw before the Great recession. During this “Great Moderation”, the economy is less likely to experience a slump, or anything like that. The economy could be on track to being what it was before the financial crisis.

In a few of my other posts, I discussed the retail market in this country and how it is important to the economy. Without a doubt, the harsh winter definitely weakened it. As the winter thawed, so did the retail market. With sales increasing, that means that consumption is on the rise too. This is important for increasing output. Consumption is an important part of output and is integral in helping a troubled economy recover from a slump. Apparently, March 2014 was a month of record numbers. It also exceeded expectations.

Taking all of this into account with the idea of a “Great Moderation”, I would say that Americans can be a little more optimistic about their nation’s economy. As previously mentioned, March was a month of record growth rates. Furthermore, we are seeing the same kind of economic activity that we saw before the drastic downturn in 2008. Before the recession, the United States economy was very strong. We are seeing similar signs of that today. If this were to continue, then the recession would be a thing in the past. This could very well be the light at the end of the tunnel that America has been dying to see since 2008.

Retail: Affecting More Than One Part of the U.S. Economy

The polar vortex has been caused one of the most brutal winters that most people have seen. Temperatures were far below average and snowfall was much higher than average. One of the tolls of this unusual winter has been its affect on the economy. Now that it is nearing its end, the economy is on the upswing.

An article in the Wall Street Journal, explores this. The article focuses on retail sales. Now that the winter is winding down, retail sales have already increased by .3%. Obviously, some retail items are intended for winter, and their sales would increase. An example would be winter coats and boots. Those both saw increased sales due to the weather, which is what would be expected. According to the article, sales of swimsuits are also rising at a healthy rate. I guess people are ready for the warmer weather to come.

While the retail industry has been positively affecting the economy on the consumption side, the employment side has been suffering. The article in the New York Times has graphs that depict employment and industries that have recovered and not recovered. As one can see, retail  trade and manufacturing have both suffered during the months of January and February in the year 2014. Interestingly enough, there is a twist. According to the Washington Post, producer prices have decreased, and one reason is that shipping costs have gone down. This is for the month of February 2014.

After digesting all of this information, I realized that it makes sense. A harsh winter can have adverse effects on the retail industry, especially for seasonal products, such as swimsuits. Obviously sales for winter clothes would increase. Now that the weather is changing, people are more eager to make purchases for summer clothes. With decreased retail sales in January and February, firms would not be making enough money to keep all of their jobs in the sales and manufacturing sides. This is why employment in those industries declines. These firms simply could not afford to keep all of these employees. With the decreases in shipping costs, firms have lowered their expenses. This means that they will be able to meet the increasing demand for their retail products.

I think that it is safe to say that the end of the polar vortex is very good for the economy. First of all, the retail industry is recovering. In another blog post, I mentioned that consumption is very important to the recovery of the economy. With more people consuming retail goods and shipping costs going down, firms have more money to play with. This means that they will turn better profits and be able to hire more people, thus helping fight unemployment in the economy. Spring could be the light at the end of the tunnel. All we can do now is play the waiting game

 

Amazon’s Newest (Brilliant) Plan

Amazon already dominates the online marketplace, as most people are very aware. Their next move should only propel them further into the lead of e-commerce stores. According to people familiar with the situation, Amazon is in discussions with several retailers, which have generally shied away from the online shopping marketplace, to bring their products to the Amazon website. This is all in a brilliant scheme to improve upon their offerings and mainly to retain and even attract more customers to its “Prime” program, which is going to have its annual fee upped by somewhere between $20 and $40 in the near future. The program, which offers free two-day shipping on many products, already costs $79 per year. In order for people to be willing to pay upwards of $100 for this service, it is certainly in Amazon’s best interest to pack on to its already massive sea of offerings. In analyzing this potential deal, I believe that it is a win-win for Amazon and the retailers, but that Amazon is really getting the better part of it (surprise, surprise).

The attraction for the retailers, which could include brands such as J. Crew, Ralph Lauren, and Lord & Taylor, is that their products would be more widely seen and traffic would increase. The deal would be such that Amazon would post their items, but the links would go directly to the retailer’s website as opposed to being sold directly on Amazon. This is certainly a plus from the retailer’s perspective. For Amazon, it sweetens the deal for Prime in that shoppers would be able to get free shipping on clothes from J.Crew and Ralph Lauren, which they would not normally have had access to otherwise in the past. The downside is that the retailer will have to pay the shipping cost. This really shouldn’t be a huge deal however, because the extra traffic and sales resulting because of this deal should outweigh any shipping costs paid by the retailer.

Currently, online sales only account for 10% of the total retail world. One large reason for this is that many consumers (47% according to a survey) avoid buying online primarily to avoid shipping costs. While people might not like to go directly to the J. Crew website to make purchases since they have to pay for shipping, they may now be enticed to use the Amazon Prime program to make such purchases, since this will get them free shipping from retailers as well as free shipping for anything else they would have previously bought through Amazon anyways. With this set up, Amazon would be able to gather even more data on their customers, which guides them on how to run their business in the most effective and efficient manner.

All in all, there are tons of reasons for people to shop online (including time saving, more variety, easy to compare prices, and no crowds), while there are really only a couple of reasons not to, one of which is paying shipping fees. If Amazon can make this sort of deal with a large enough group of retailers, it could make a huge difference in their ability to raise the annual price of Prime and still have growth for the program. They will ultimately get the better end of the deal in that they will get lots more data to analyze and utilize to best service their customers.

Retail Slump

As the first month of the new years comes to an end, retailers aren’t seeing any sign of relief. Major retailers like Walmart, Lululemon Athletica, and Abercrombie and Fitch, saw a weak start to the year. All three showed slower growth than expected over the past three months, only with a brief period of relief during the busy holiday shopping season. There are many speculation on reasons for the weak growth in January, some include the cold winter weather, the particularly strong growth in the start of the previous year and retailers cutting back prices earlier in the holiday shopping season allowing discount shoppers to purchase in December instead of the traditional sales in January. The stock of all three companies above posted at a loss on the close of the business day this past Friday, most likely from the release of the not so great reports on store growth.

With companies performing poorly in January, is it likely that this trend will continue on into 2014 or can retailers turn around the decelerated growth? The second half  of 2013 was the strongest U.S. performance since the pre recession era in 2008. The positive news, however, showed weaker than expected sales in the holiday period, a possible sign of the weak start to the new year we experienced.

The economy is already facing other issues, including the dropping market from poor emerging market forecasts and the Fed announcing that it will continue its tapering policy and drop bond purchases by another ten billion in February. The stock market, in fact, had one of its worst Januaries since the pre recession era, with the Dow index dropping almost 150 points and 5% overall. For the Dow, this was the worst January since the recession hit in 2009. Some experts speculate that we could experience about another 5% decrease before we switch back to an upward trend. In theory this would be normal as the stock market has been known to have peak and troughs around an upward trending line.

It is unlikely that in 2014 we will see the overall trend of the stock market drop, it is much more likely that the economy as a whole will continue to grow, just at a rate slower than we experienced with the strong second half of the past year. The emerging markets, however, will not be as attractive, as the stronger dollar will entice investors to move investments domestically. And it is possible that the fed will slow down the amount it tapers each month as purchases move closer to zero.

Challenges and solutions for retailers

This winter has been tough to retailers.

J.C. Penney on Wednesday announced its decision to close 33 underperforming stores, eliminating around 2000 jobs for cost savings. The company was considered of having slow-coming turnaround, despite of its claim that it was “pleased with its holiday performance”.

In 2013, holiday retail sales advanced 3.8 percent compared to the 2012 holiday, which was below its forecast 3.9 percent gain.

Definitely, inefficient turnaround was not the only issue facing retailers.

First, the industry was under the shock of e-commerce, a trend that significantly outperformed growth in traditional physical store in 2013, based on more efficient online operations and cost-saving strategies. Apparently, higher cost associated with physical presence might be a burden for retailers, but such presence could be turned into a competitive advantage if retailers could work on in-store user experience to strengthen the bond between consumers and their brand.

For example, Intel’s booth displayed a full length “mirror” that allows shoppers to try on multiple outfits, then view, compare and share photos of the outfit with friends. Technology from Motorola scans what items consumers bring into the dressing room. Consumers can then tap a screen to order an out-of-stock item before they change back into their clothes.

Second, there has been an increasing privacy concern after the unprecedented data breach for Target. So retailers have to be more prudent in the future when it comes to data collection and payment process. Moreover, they have to show their respect to consumers by fully releasing their monitoring policy and detecting any prospective threat to consumer’s privacy.

Third, “price war” was intense as retailer tends to offer endless discount for promotion. Actually, they would be better off if they could innovate and diversify their product offerings.

From a long-term perspective, the rise of “click and collect” may prevalent since the concept highlighted the importance of the interaction between virtual space and physical space, as customers order online and pick up their items in store. It tends to be welcome by both e-commerce runners and retailers because of the great integration of online effectiveness and in-store experience. Nevertheless, the counter-parties still have to work on various issues, including display of items and sharing of profit .

In conclusion, the retail industry is going through a rapidly evolving period as increase in online consumption tends to be inevitable. Nevertheless, opportunities still await retailers if they could take advantage of its physical presence, work on privacy protection, and team up with online sales.

Sources:

http://www.cnbc.com/id/101338420

http://www.cnbc.com/id/101332279