A rise in disposable income will likely encourage consumers to increase their spending on quality products sold by industry operators.
Los Angeles, California (PRWEB) November 01, 2011
Over the five years to 2016, IBISWorld expects the Small Specialty Retail Stores industry to face better climates than in years past. As the economic recovery continues to gain traction, consumers will allot more disposable income to purchases of quality products, driving industry demand upward, according to IBISWorld, the nation’s largest independent publisher of industry information. However, recovery will be tempered by residual low prices from the recession and increasing competition, both of which will likely keep revenue and profit low. In addition, demand for tobacco products, which make up the majority of the industry's sales, is expected to slowly decline over the five-year period due to government regulations and rising health concerns. In the five years to 2016, revenue is projected to grow at a marginal rate to $25.3 billion.
Operators in the Small Specialty Retail Stores industry sell specialized lines of very diverse products, from premium cigars to sketch pads. Due to its fragmented nature, the industry is driven not by product-specific trends but rather by broad changes in consumer sentiment and household disposable income. Since the recession, these macroeconomic drivers have taken a negative turn, causing US consumers to cut back on purchasing industry products. As a result, IBISWorld estimates that revenue will decrease at an average annual rate over the five years to 2011 to total $24.3 billion. In line with the recession, the steepest declines occurred in 2008 and 2009, when revenue fell by 9.7% and 7.5%, respectively. However, as the economy began its recovery and consumers began to spend again, industry revenue slowed its decline slightly, falling by 2.5% in 2010. IBISWorld expects this upward momentum to carry into 2011, when revenue is estimated to increase 0.8%.
In addition to poor spending conditions, increased external competition has further weakened industry demand. In the five years to 2011, mass merchandisers, warehouse clubs, discount department stores and online retailers have taken market share away from industry operators by providing convenient one-stop shopping and low prices for similar industry products. These factors have turned many consumers away from small specialty stores, leading to reduced profitability. IBISWorld estimates that industry profit margins have dropped slightly from 3.4% of revenue in 2006 to about 3.0% in 2011. This poor performance has also caused underperforming retailers to exit the industry; the number of enterprises has declined.
According to IBISWorld analyst, Janet Shim, as the economy gains traction in its recovery, revenue in the Small Specialty Retail Stores industry is projected to increase 0.8% from 2011 to 2012. “A rise in disposable income will likely encourage consumers to increase their spending on quality products sold by industry operators,” says Shim. “However, such growth will be temporary, as the competition from external industries like department stores and e-commerce websites will likely continue to erode demand. In addition, permanent price declines will likely keep profitability low in the five years to 2016.” Over the five-year period, IBISWorld forecasts that industry revenue will post marginal annual growth of only 0.8% to total $25.3 billion.
For more information, download the full report from IBISWorld on the Small Specialty Retail Stores industry
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