FTI Consulting Retail Report Projects 3.0 Percent Increase in 2011 Holiday Season Sales
Annual Report on State of U.S. Retailing Shows Resilience of Sector despite Economic Woes
This year's annual report provides an analysis of the U.S. retail sector, which includes total GAFO category sales, as well as online and mail order sales, for
"Last year's holiday season proved to be considerably stronger than most predictions, gathering unexpected strength from last-minute tax relief measures through 2012 that encouraged spending by lower and middle income families and perhaps some splurging by high income households," said
Key insights on the U.S. retail sector from the 2011 report include:
- Promotions and Discounting on the
Rise: 2011 is shaping up to be a very promotional holiday season despite tightly managed inventory levels for most large chains. The economic slowdown since May 2011and the renewed financial anxieties for many American households have dissuaded many retailers from boosting prices even as product costs rise. To address consumers' pricing sensitivities, promotions and aggressive discounting will set the tone for the season, largely easing earlier concerns of accelerating inflation for shoppers of non-consumable goods.
- Online Retailing Continues to Dominate while Social Media Drives Visibility: The direct-to-consumer channel was the standout performer of the 2010 holiday season for U.S. retailers, accounting for 20 percent of total 2010 holiday season sales.
FTI Consultingexpects the popularity of online shopping to continue growing at low double-digit rates this holiday season — slightly lower than last year. Mobile commerce still is not a factor here yet but certainly will be in the years ahead.
- Going Global Is within Reach for Strong Brands: The online channel as a shopping and transacting medium on a global scale, combined with strong distribution capabilities and the marketing potential of social media for large retailers, gives established national brands a shot at global reach like never before. Communications technology continues to tear down geographic barriers pertaining to commerce.
- Retailers Learned to Do More with Less during Recession: U.S. retailers were forced to make sharp cuts to their workforces during the recession. Between 2007 and 2009, the industry saw an unprecedented decline in jobs, equaling nearly 8.0 percent of its pre-recession workforce. Today, few of these jobs have come back due, in large part, to retailers' ability to do more with less since the recession. Consequently, labor productivity has soared for the sector. With concerns of another slowdown or recession, large chains have shown little inclination to boost hiring from current levels with the exception of seasonal help. Most large retailers have managed their businesses aggressively through marked improvements in supply chain management and working capital investment — and such measures have been fruitful for the sector.
- Retail Real Estate Is Showing Some Cracks: The bankruptcies of several large retail chains over the last few years, including
Bordersand Blockbusterstore closings in 2011, is beginning to weigh on some types of retail real estate, particularly strip malls, with vacancy rates at cyclical highs for these shopping centers and rental rates generally depressed. Furthermore, the popularity of online shopping also will serve to discourage new store openings in non-essential markets. Only "Class A" shopping malls needn't worry about these developments.
- Office Supply Retailers May Face Consolidation: Similar to the channel migration issues faced by large booksellers and music stores in the past few years,
FTI Consultingexpects office supplies to be the next sector to experience some degree of consolidation activity. With online sales of office supplies now accounting for nearly one-quarter of total sales in the sector and growing, there could be noticeable store closings by some or all of the three top chains. Online retailers, like Amazon, have expanded their product offerings in this category. FTI Consultingbelieves that the office supply category is naturally suited for the online channel and currently is over-stored.
This year's report, entitled "… Fear Itself," examines the macroeconomic conditions impacting
Sherrie Weldon, FTI Consulting, Inc., +1-415-293-4408, email@example.com