04 October 2009
Considering Closing Your Store - Trends To Be Aware Of
Oct/08/2009 10:32 Filed in: Store Closing
Sale
Trends You Need To Consider
Retails sales in 2007-2008 were driven partly by higher gasoline costs as well as by deep price discounting during the holiday seasons by mass merchandisers. Meanwhile, automobile sales saw a disastrous drop off in 2008, with total sales of cars and light trucks for the year at about 13.2 million, down from about 16.5 million in 2007 and 17.5 million at the peak in 2005. Car sales in 2009 are still declining further and the future of American car manufactures is in question.
Retail sales in 2008 were affected by several factors:
1) Sales of both new and existing homes slowed dramatically. While homes themselves are not counted in retail sales figures, buyers of these homes are a significant force at retail stores where they purchase furniture, appliances, linens, consumer electronics and garden supplies to fill up their new residences. Likewise, builders and remodelers are a strong factor in retail sales, when they purchase supplies, materials, appliances, etc. at retail outlets. The slowdown in building and remodeling led to reduced sales at home centers such as Home Depot.
2) Another factor was home mortgages: From 1998 through part of 2006, Americans were refinancing their existing home mortgages in record-setting numbers. In doing so, they took advantage of very low mortgage interest rates and very easy lending requirements. Many homeowners also increased the balance on their mortgages, taking advantage of rapidly rising home values that increased their borrowing power. Borrowing against home equity lines of credit was also high, and much of that money went to retail purchases. Homeowners were spending this cash windfall freely, driving up retail sales in many categories. However, by late 2006, the slowing real estate market, followed by tougher lending standards, meant that the party was over. This definitely had a negative effect on retail sales.
3) Another major negative impact was the growing number of homes going into foreclosure as their owners were unable or unwilling to meet monthly payments. Many of these foreclosed homes are part of the sub-prime mortgage fiasco that is rocking financial markets, where borrowers have poor credit or inadequate income. Also, a large portion of foreclosed homes are those subject to rising monthly payments due to adjustable rate mortgages.
4) Unfortunately, consumers were forced to retrench in 2008, and that trend has accelerated in 2009. Current economic trends are tough on retail customers. They have fewer discretionary dollars left in their budgets after they face the challenges of high prices for energy, health care, food, insurance and mortgages. Meanwhile, job security has declined.
Negative factors impacting the retail sector:
• Extremely high consumer debt levels
• Higher health care costs for consumers
• Global terrorism, tension and uncertainty
• Consumers burdened with high energy costs
• A continuation of depressed conditions in the housing market
• Rising home mortgage foreclosures
• Layoffs and falling profits in a wide variety of business sectors
• Rising unemployment levels
• Tightened lending standards
• Extremely low consumer confidence
Consumers will be more conservative going forward, saving more while spending less. When they do spend, they will focus on high-value items with long life, low impact on the environment and low energy consumption. Items that promote a healthy lifestyle will receive a growing focus.
Meanwhile, competition among retailers has never been tougher. A retailer without a significant competitive advantage doesn’t stand a chance. Superstores are battling each other on every major corner while direct marketers (including catalogs and online sites) are stealing customers from stores. Online selling at deep discounts is even making immense inroads into major consumer purchases such as jewelry. Many retailers have been driven into bankruptcy recently, including Mervyn’s, Circuit City, Goodes, Sharper Image, Linens ‘n Things, Bombay Co., and mail order firm Lillian Vernon, and more will follow.
Growth in online shopping has been driven by two factors. First, the number of fast Internet connections in U.S. homes and businesses leapt to about 100 million by early 2008. These connections make buying online faster and more interactive. Next, there’s the savvy marketing of online giants like Amazon.com (with more than $14.8 billion in 2007 revenues, up dramatically from $10.7 billion in the previous year), as well as the e-commerce efforts of traditional retailers such as Home Depot and Wal-Mart. These fast Internet connections are extremely important, even at the office, since a large number of U.S. workers take time out to shop online from their desktops.
All current trends point to a tough time for retailing this Christmas. Among the rare bright spots are Wal-Mart and Costco, where consumers know they can find everyday low prices on high quality merchandise. On-line retail sales will continue to grow.
Retails sales in 2007-2008 were driven partly by higher gasoline costs as well as by deep price discounting during the holiday seasons by mass merchandisers. Meanwhile, automobile sales saw a disastrous drop off in 2008, with total sales of cars and light trucks for the year at about 13.2 million, down from about 16.5 million in 2007 and 17.5 million at the peak in 2005. Car sales in 2009 are still declining further and the future of American car manufactures is in question.
Retail sales in 2008 were affected by several factors:
1) Sales of both new and existing homes slowed dramatically. While homes themselves are not counted in retail sales figures, buyers of these homes are a significant force at retail stores where they purchase furniture, appliances, linens, consumer electronics and garden supplies to fill up their new residences. Likewise, builders and remodelers are a strong factor in retail sales, when they purchase supplies, materials, appliances, etc. at retail outlets. The slowdown in building and remodeling led to reduced sales at home centers such as Home Depot.
2) Another factor was home mortgages: From 1998 through part of 2006, Americans were refinancing their existing home mortgages in record-setting numbers. In doing so, they took advantage of very low mortgage interest rates and very easy lending requirements. Many homeowners also increased the balance on their mortgages, taking advantage of rapidly rising home values that increased their borrowing power. Borrowing against home equity lines of credit was also high, and much of that money went to retail purchases. Homeowners were spending this cash windfall freely, driving up retail sales in many categories. However, by late 2006, the slowing real estate market, followed by tougher lending standards, meant that the party was over. This definitely had a negative effect on retail sales.
3) Another major negative impact was the growing number of homes going into foreclosure as their owners were unable or unwilling to meet monthly payments. Many of these foreclosed homes are part of the sub-prime mortgage fiasco that is rocking financial markets, where borrowers have poor credit or inadequate income. Also, a large portion of foreclosed homes are those subject to rising monthly payments due to adjustable rate mortgages.
4) Unfortunately, consumers were forced to retrench in 2008, and that trend has accelerated in 2009. Current economic trends are tough on retail customers. They have fewer discretionary dollars left in their budgets after they face the challenges of high prices for energy, health care, food, insurance and mortgages. Meanwhile, job security has declined.
Negative factors impacting the retail sector:
• Extremely high consumer debt levels
• Higher health care costs for consumers
• Global terrorism, tension and uncertainty
• Consumers burdened with high energy costs
• A continuation of depressed conditions in the housing market
• Rising home mortgage foreclosures
• Layoffs and falling profits in a wide variety of business sectors
• Rising unemployment levels
• Tightened lending standards
• Extremely low consumer confidence
Consumers will be more conservative going forward, saving more while spending less. When they do spend, they will focus on high-value items with long life, low impact on the environment and low energy consumption. Items that promote a healthy lifestyle will receive a growing focus.
Meanwhile, competition among retailers has never been tougher. A retailer without a significant competitive advantage doesn’t stand a chance. Superstores are battling each other on every major corner while direct marketers (including catalogs and online sites) are stealing customers from stores. Online selling at deep discounts is even making immense inroads into major consumer purchases such as jewelry. Many retailers have been driven into bankruptcy recently, including Mervyn’s, Circuit City, Goodes, Sharper Image, Linens ‘n Things, Bombay Co., and mail order firm Lillian Vernon, and more will follow.
Growth in online shopping has been driven by two factors. First, the number of fast Internet connections in U.S. homes and businesses leapt to about 100 million by early 2008. These connections make buying online faster and more interactive. Next, there’s the savvy marketing of online giants like Amazon.com (with more than $14.8 billion in 2007 revenues, up dramatically from $10.7 billion in the previous year), as well as the e-commerce efforts of traditional retailers such as Home Depot and Wal-Mart. These fast Internet connections are extremely important, even at the office, since a large number of U.S. workers take time out to shop online from their desktops.
All current trends point to a tough time for retailing this Christmas. Among the rare bright spots are Wal-Mart and Costco, where consumers know they can find everyday low prices on high quality merchandise. On-line retail sales will continue to grow.