Operators, like Macy’s realize that they need to offer online shopping facilities if they are to remain a competitive force in the industry
Los Angeles, California (PRWEB) November 10, 2011
As America's top department store Macy's raises its 2011 outlook, IBISWorld, the nation’s largest publisher of industry research, forecasts the Department Stores industry will experience better results in the five years to 2016. On the strength of the economic recovery, revenue is forecast to increase at an average annual rate of 1.0% over the next five years to total $201.5 billion. With rising sales, profit margins are likely to increase to about 6.1% of revenue in 2016, providing much needed relief to industry operators. However, the industry's outlook is not entirely bright, as looming competition from online retailers is expected to place price pressures on industry operators, while even more players will transfer to the Warehouse Clubs and Supercenters industry.
Traditionally, consumers have only had two options for buying new products: traditional brick-and-mortar shops and mail-order catalog retailers. However, the internet now provides consumers with a new and convenient method of shopping without even needing to leave home. According to IBISWorld analyst, Janet Shim, the number of consumers placing online orders is forecast to increase over the five years to 2016, bolstered by improvements in websites that make it easier for individuals to search for items, compare prices and make purchases. Department stores that currently have online purchasing facilities include Macy's stores and Bloomingdales subsidiaries, along with J.C. Penney, Target and Walmart. America's top department store, Macy's, who operates about 850 locations in 45 states, has evolved into a company in excess of $25.0 billion, and employing over 180,000 people retailing a range of men's, women's and children's' apparel and accessories, as well as wide range of cosmetics, fragrances and home furnishings. “Operators, like Macy’s realize that they need to offer online shopping facilities if they are to remain a competitive force in the industry,” says Shim.
The Department Stores industry has fought through tough conditions over the five years to 2011, with revenue expected to decline at an average annual rate of 3.7% to $192.1 billion. Weak consumer confidence and low disposable income deterred households from making discretionary purchases during the recession, causing demand and sales to fall substantially for traditional department stores. Furthermore, in recent years, online retailers have emerged as a threat to industry players, stealing customers by offering convenience and low prices. Such poor conditions have caused profit to plummet from 6.9% of sales in 2006 to an estimated 3.8% in 2011. However, these conditions have allowed discount department stores to thrive, as their low prices drew in customers looking to stick to a budget. Recent improvements in economic conditions are expected to relieve some of the industry's struggles; revenue is estimated to increase by 1.9% in 2011.
Over the five years to 2011, the transition of discount department stores to warehouse clubs has caused much of the industry's decline. Discount giants, such as Walmart and Target, have begun retrofitting stores with fresh grocery sections in order to expand their markets and obtain more consumer capital. This expansion, however, takes them into the Warehouse Clubs and Supercenters industry, effectively reducing their market share within the Department Stores industry. In addition to this leakage, many operators have been forced out of the industry or have consolidated and merged with larger players. As a result, over the five years to 2011, the number of companies is expected to decrease at an annual average rate of 3.6% to an estimated 308 operators.
Fortunately, continued economic recovery is forecast to aid the industry's growth in the five years to 2016. Armed with deeper pockets, consumers will likely increase spending on high-end discretionary items, such as those sold by traditional department stores. Additionally, discount department stores are expected to thrive, as customers will continue to shop well within their budgets out of caution. IBISWorld expects that despite heavy online competition, industry revenue will increase over the five-year period at an average annual rate of 1.0% to total $201.5 billion by 2016.
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