Retail industry CFOs: Know Your Customer’s Buying Decisions or Perish
South Plainfield, NJ (PRWEB) October 24, 2013 -- For 2013-14, you need to do more than hoping for “all boats rising” in a great economy. GDP will grow very modestly, in the 2.5% range, and the official employment numbers will creep up ever so slightly. The critical Millennials and Generation Z will continue to face employment challenges, as a large percentage will continue to draw on parental support, and certainly constraining their shopping for work clothes. Employment participation rates are at the lowest level in 34 years, especially among the younger generation.
Why the switch from teen dream to nightmare? According to the US Bureau of Labor Statistics, in July 2013 the youth (16 to 24 years old) employment rate was only 50.7%, leaving one out of two without a paycheck. When they do spend, their main priorities are smartphones and electronics. Except for that, the trend this year is frugality: young adults are checking the price tag twice, even over a mere dollar or two.
Brands Vs. Value:
American Eagle, Aeropostale, and Abercrombie & Fitch stumbled in the second quarter and face an even rougher fall. Why? Fickle teen shoppers are spending on affordable fashion at Zara, Forever 21, Gap, and H&M, not the logo-centric retailers. Cheap is the new chic…by necessity..
Luxury Goods:
At the other end of the market, the rich keep getting richer. Luxury prices soared due to demand, and also higher costs for raw materials, marketing, and labor in Asia. Contrary to the general trend, the ranks of high net worth individuals grew 9.2% in 2012 to 12 million people, according to Capgemini. On August 30, 2013, Hermès International’s Axel Dumas told Women’s Wear Daily that U.S. growth opportunities resemble an emerging country. “We are just at the beginning of what could be a good trend”. While Hermes focuses on the U.S., Louis Vuitton will unveil its revamped and expanded Matsuya flagship in Ginza this week, underscoring its long-term commitment to the Japanese luxury market, which is showing signs of a rebound.
A Trifurcated Market:
A stagnant middle class is the reason for increasing divergence in retail. Mid-price stores will see limited growth while luxury and discount retailers will continue to expand. On the discount side, national dollar store chains are growing aggressively and occupying more and more freestanding locations. Dollar General and Family Dollar, with over 17,000 stores between them, each plan at least 500 new stores in 2013, and 15 million square feet of new space this year. Both continue to show strong same store sales gains while industry giant Wal-Mart seems to have plateaued and seeks new ways to get more customers into its’ stores.
Internet Sales:
Online apparel sales continued to grow, but retailers are discovering people still like coming into stores, resetting expectations for bricks and mortar. One retailer, Tuesday Morning, just jettisoned its online sales to focus on its closeout stores that account for 99% of business.
According to a Wall Street Journal article, billions in online marketing haven't shifted much away from stores. For example, Wal-Mart reported a miniscule $7.7 billion in online sales, compared to its $425 billion or so total sales. Of course there is Amazon, which continues to successfully hammer away at traditional retail. Overall, the Commerce Department reported online sales accounted for 5.8% of all sales during the second quarter 2013. Retailers need to stay connected with their digital side, but foot traffic continues to drive sales.
Trends for Autumn and Winter:
According to an August poll of 1,100 U.S. consumers by Ipsos for Reuters this month, 26% plan to spend less on clothing this holiday season, while only 12% say they expect to spend more. Reiterating this point, IBM’s retail consultants forecasted that for the holiday season, while it expects appliance and home goods sales to increase around 2%, it anticipates a steep decline of 3.62% in men's apparel.
A slow steady pace continued through the summer but with fall arriving, complacency might be replaced by anxiety. Much remains positive: consumer confidence is up, the government’s reported official unemployment dipped to 7.4%, and the continued trend of consumers paying down debt and improving housing market offers a chance for a bump in end-of-year credit sales. Yet, negative factors such as rising oil prices and interest rate uncertainty weigh heavily.
Summary:
To quote Dickens “It was the best of times, it was the worst of times…” In short, there is plenty to worry about, but that’s the way it always is. Some businesses are positioning themselves to take advantage of the current trends and others need to seek cover, so keep your eyes peeled!
Credit2B™ (formerly Bernard Sands) has been the gold standard for retailer credit opinions since 1925. Credit2B™ is a cloud-based service that combines traditional credit information with the Intelligence of the Community™; our network of thousands of industry credit managers that contribute to more timely, relevant customer credit information. For more information about Credit2B’s deep insights in retail, please visit us at http://www.Credit2B.com to learn more.
Bob Carbonell, Credit2B, http://credit2b.com, +1 646-442-3461., [email protected]
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