This is the worlds leading source of financial content on the web, ranging from market news to retirement strategies, investing education to insights from advisors.
Forex Forever!

Trends Causing Retailers To Struggle (JCP, M)

Author: Daniel Davis

The health of the retail industry is usually tied to that of the overall U.S. economy. According to a PricewaterhouseCoopers LLP study, retail is the largest private employer in the United States. Retail directly and indirectly supports 42 million jobs, provides $1.6 trillion in labor income and contributes $2.6 trillion annually to U.S. GDP." Consumer spending on retail items like durables (i.e., washing machines and refrigerators), semi-durables (clothing) and nondurables (such as food items) is the economy's lifeblood, to the point where some economists favor boosting consumer spending as a remedy for a sluggish economy.

However, recent trends have been an exception to this trend. While the U.S. economy appears fairly stable today, the retail industry is not. Thousands of stores and outlets have been shuttered by such national chains as J.C. Penney, Barnes & Noble (BKS), Macy's (M), Nordstrom (JWN) and the now-bankrupt Deb Shops, among many others.

The Key Reasons

One reason is that retailers are increasingly at the mercy of what seems to be irrevocable cultural trends, within and outside the retail industry. Here are some major causes of the industry's woes.

  • Online Shopping

Smart phones and tablets are becoming the new storefronts. Buying online allows customers to choose from a wide range of products that are usually always in stock, at whatever time they want and from the comfort of their homes, workplaces or even cars. So now people enjoy shopping at midnight while sitting on the couch, no longer having to contend with rush hour traffic to reach a store during its ‘open' hours.

The growth of online shopping has severely hit brick and mortar stores and has left many formerly top retailers at a loss, as the majority haven't been able to adapt as yet. A substantial drop in mall traffic has sunk profits, to the point where keeping stores open no longer seems financially viable. The worst-case scenario has occurred again and again: former retail giants Borders, Tower Records and Circuit City have all collapsed, shuttering all stores and filing for bankruptcy.

J.C. Penney Co Inc. (NYSE: JCP) is still deep in the struggle. Where the company's share price topped $43 in February 2012, it's now trading at just above the $8 mark. Its revenues have been sapped by its retail store legacies: high maintenance costs are eating away at profits. By contrast Macy's has been more adept at moving into e-commerce, making its in-store and online business work together in combination. Though Macy's is shrinking the number of its brick and mortar stores, its revenues have grown and it currently trades at $58 a share. (For more, read: Macy's Using Same-Day Delivery to Fend off Rivals.)

  • Shrinking Surplus Income

Another reason for retail's troubles is that customers simply don't have as much money as they once did. According to an analysis by Enterprise Community Partners in the MailOnline, more than one in four Americans are spending at least half of their family income on rent - leaving little money left to purchase groceries, buy clothing or put gas in the car." About 11.3 million households devote half or more than half of their income on utilities and housing, while about 1.8 million households spend 70% of their income on rent. So at the end of the day, the average middle class U.S. household isn't left with much disposable income, and has little inclination to spend it at inconveniently-located stores with set hours. (For related reading see: What's Holding Back the U.S. Consumer.)

Trying to Adapt

Given these factors, retailers are struggling to make their businesses more compact and financially viable. In many cases, this means abandoning stores at locations which no longer have a neighborhood population to justify their day-to-day operating costs. Downsizing such locations will help stores divest themselves of these legacy costs, with any savings diverted into upgrading their technology and distribution capabilities.

The Bottom Line

While retailers are aggressively downsizing, this doesn't necessary portend their irrevocable fall. Done well, downsizing can make the retailer more efficient, emerging with a compact group of stores that have lower operating and management costs. Retailers are shifting to omni-channel retailing, creating a seamless shopping experience by combining in-store, online services and more. Omni-channel retailing is based on an order management system which, according to a white paper by UST Global is an intertwined network of various systems that give a single integrated view to both the retailer and the customer." While the front end is the retailer's public "face," "the back-end systems are the backbone that supports that value. (For related reading see: The Industry Handbook: The Retailing Industry.)

last five articles

#1201 4 Companies That Offer ETF-Only 401(k) Plans

Author: Daniel Davis

ETFs, or exchange-traded funds, have become popular investment vehicles. It's no wonder that they have found their way into 401(k) plans – especially given the cost savings and transparency they provide.Whether an ETF-only 401(k) retirement plan makes sense for you and your employees wil... see more

#1462 Is the Hamptons Real Estate Market Getting Too Hot?

Author: Matthew Smith

When you begin to see real estate tracking services like Curbed reporting second quarter slippage from the previous heady quarter in the Hamptons, is it time to head for the hills, double down or hunker down? Investing in real estate in the Hamptons is a little like investing in very high... see more

#163 When Do Social Security Benefits Start and End?

Author: Daniel Jackson

Most people think of Social Security in terms of a monthly payments that start arriving when you stop working. But in fact, Social Security is an umbrella term, referring to a U.S. federal program of social insurance and benefits (one of the largest government programs in the world) that pays out... see more

#797 The Credit Card Chip: What Travelers Must Know

Author: Jacob Davis

If you travel outside the U.S., you might already know that credit cards are changing. The latest credit card technology is an embedded computer chip, and the new chip cards are already in use in Europe and other parts of the world. The primary difference between the old cards and the new cards i... see more

#565 Bankruptcy And Your Credit Score

Author: Jacob Taylor

Declaring personal bankruptcy is a nightmare everyone hopes to avoid. Coming back from it poses a challenge for those eager to re-establish a clean credit history.There are two ways for an individual, or married couple, to declare bankruptcy – Chapter 7 and Chapter 13. The former wipes o... see more