Retail USA In Four Years

According to a new Whitepaper from Nielsen, What’s In Store, In-Store For U.S. Retail In 2016, presented byTodd Hale, Senior Vice President, Consumer & Shopper Insights, traditional mass merchants and supermarkets have yielded share to value channels (club, dollar, and supercenter) and drug stores, prompting a series of changes, including format blurring, new marketing outreach techniques and shopper entertainment.

Highlights from the findings include:

  • Store footprints either get supersized for one-stop-shop convenience or downsized into smaller stores for quick grab-and-go trips
  • For people who view shopping as entertainment that engages all the senses, lifestyle outlets blur the line of demarcation between traditional formats, merging restaurants with food markets, serving up food and wine tastings, providing live music and movies, and creating places for friends and co-workers to gather and socialize
  • Technology brings consumers into the shopping experience via options such as touch screen ordering, QR code advertising, mobile coupons and shopping lists.
  • Store brands mushroom to include super premium offerings joined by an increasing number of restaurant and celebrity-chef brands, while a few consumer packaged goods brands transitioned onto restaurant menus
  • The Big 4 technology companies [Amazon, Apple, Facebook, Google] will establish beachheads outside the tech world, challenging conventional players to re-think their business models and forge new alliances or chance seeing themselves become less relevant
  • Deep discounters continue to keep the cap on operating costs in order to maintain their price edge, but low prices alone have not been enough to guarantee sales success

The report goes on to say that retailers will be challenged as never before to differentiate from an ever-expanding competitive set that brings novel ideas and fresh perspective to the marketplace. Using historical trends in retail channel sales and store counts, along with a select number of macroeconomic variables, Nielsen predicts above average compounded annual dollar sales growth (CAGR) for the e-commerce, club, dollar, pet store, supercenter and drug channels ranging from 8.5 to 2.7%.

Ecommerce tops the list of growth channels. During the 2011 holiday season, retailers across different channels touted free shipping and big discounts, attracting consumers eager to save time and gas money by shopping at their fixed and mobile keyboards.

Responding to sales gains made by online competitors, brick-and-mortar retailers are evolving their business models to add more choices for online and offline ordering as well as delivery and pick-up options.

Projected Retail Channel Compound Annual Growth Rate

Retail Channel

Compound Growth Rate 2010-2016

Gaining Share

   Ecommerce

8.5%

   Club

4.9

   Dollar stores

4.8

   Supercenters

4.6

   Pet

4.1

   Drug

2.7

Losing Share

   Convenience/gas

2.1

   Supermarkets

1.5

   Liquor

1.2

   Discount department stores

0.4

   Sporting goods

0.3

Losing Share & Negative Growth

   Home improvement

-0.1

   Department stores

-0.4

   Auto

-0.5

   Home, bed, bath

-0.5

   Office

-0.5

   Apparel

-0.8

   Electronics

-0.9

   Books

-1.1

   Toy stores

-1.7

   Mass merchants

-3.0

Source: Nielsen TDLinx & Nielsen Analytics, March 2012

Throughout the recession and economic recovery, the club chains appealed to shoppers seeking value, says the paper. Club store growth reflected a unique connection with affluent consumers, the 21% of households that exited the recession early, as evidenced by their increased all-outlet shopping trips and overall spending.

A major impetus behind dollar store growth was a recession-fighting strategy featuring an expanded offering of consumables to attract price-conscious shoppers across all income strata. Additionally, dollars stores kept their foot on the gas with respect to store expansion in existing and new geographic areas. As a result, the 21,500 site store count for the three leading dollar store chains [Dollar General, Dollar Tree and Family Dollar] now exceeds that of the three largest national drug store chains [Walgreens, CVS and Rite Aid].

Over the past decade, supercenter format expansion had the greatest overall impact on U.S. retail sales. While industry pundits discuss the future of these and other big box formats, future supercenter expansion from the big players in the channel will continue to foster sales growth over the next five years.

The American love for pets triggered a 40% increase in chain pet store numbers between 2005 and 2010. With pet ownership reaching all time highs, the pet channel will deliver a strong CAGR through 2016.

With an aging population with strong demand for prescription drugs, the drug channel will maintain fiscal health, outpacing the average channel growth rate. All other channels will lose ground, even if they continue to grow on a nominal dollar basis. Specialty retailers such as auto, sporting goods, electronics, books, toys and home/bed/bath stores will face the biggest challenge.

Some specialty retailers (e.g. toy, book and electronics stores) have experienced significant erosion in store count as big retailers in each sector closed their doors for good. Either declining store counts or lower shopper demand has led to decay in shopper penetration for many specialty retail channels. Pressure from offline and online big box competitors and pure play online retailers will likely lead to further declines.

Supercenter store count more than doubled to 3,468 stores and

these mega one-stop-shop behemoths captured nine share points within consumer packaged retail formats between 2001 and 2010.

With the exception of an aggregate 6.1 share point gain for e-commerce, supercenters and club stores, the Nielsen forecast suggests that share shifts between 2010 and 2016 will be relatively minor for the other formats. Supermarket share will decline at a diminishing rate relative to the past decade or more. The convenience/gas channel share will decline just slightly, while the mass merchandiser channel will experience a share loss of 1.7 points.

The projected share decline for mass merchandisers reflects the historic Walmart effort to convert existing discount locations into supercenters and to a lesser extent from Kmart store closings. Specialty retailers are expected to suffer share declines across the board, ranging from a one percentage point fall for home improvement outlets to a marginal 0.2 percentage point drop for sporting goods stores. Surveying the smaller specialty retail channels, only pet stores will realize a share increase.

Expect Amazon, Apple, Facebook and Google to focus on highly profitable enterprises outside their current purview, including retail. An industry expert has said, “Amazon, Apple, Facebook, and Google don’t recognize any borders; they feel no qualms about marching beyond the walls of tech into retailing…and even finance.” These four companies will enhance or disrupt the future of retail, either in how and where merchandise is sold or how organizations communicate with shoppers and consumers.

Points of marketing differentiation suggest in the report include:

  • Adjusting size, assortment, in-store activities, customer communication, design and branding, stores hope to find an optimal mix that maximizes profits and customer loyalty
  • Retailers opted for designated stores-within-a store, pulling together related items that fulfill a consumer need into a discrete space such as a cosmetics department complete with expert consultant, occasion-based home meal solution centers or dedicated pet care areas
  • An unconventional bent includes virtual stores in high-traffic subway stations, or a floating supermarket on the Amazon River designed to reach 800,000 consumers in just three weeks
  • In-store techniques for attracting shoppers include product sampling, live musical performances and how-to stations demonstrating everything from juicing to preparing sushi
  • Multi-station prepared food offerings now popular in a number of grocers compete directly with carry-out and home delivery restaurants. But other retailers chose the cooperative route, striking deals to staff in-store restaurants
  • Restaurateurs and television chefs crossed over into the world of consumer packaged goods, lending their names to a wide range of products
  • Mobile and online technologies enable one-to-one marketing, customizing shopping lists, menu plans, coupons and other content to reflect user interests and consumption patterns
  • In-store shelf talkers take on a new, interactive dimension with QR codes that connect directly to robust websites offering discounts and cross merchandising suggestions such as wine pairings
  • Online avatars and in-store service agents assist consumers with meal management, entertainment, health and wellness monitoring and fashion selections

The paper concludes by anticipating that:

  • Volatility in energy and commodity prices will become the norm
  • A redefined competitive set will prompt former adversaries to forge marketing alliances
  • The chasm between income and wealth strata will enable retailers at both the high and low ends of the price spectrum to prosper by merchandising to niche audiences
  • Mobile applications, will open the door to innovative marketing approaches
  • Stores will emerge as the social centers of communities

For more information from Nielsen, please visit here.

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1 comment about "Retail USA In Four Years".
  1. Manmohan manu from retailcom , March 27, 2012 at 6:19 a.m.
    Good article on retail and its future in the US. Read an informative Commentary on Consumer Products with insights from surveys which you may find useful @ bit.ly/xminHv