Wednesday, August 8, 2007

Specialty Retail Industry Profile

Worth approximately $155 billion in 2006, the US specialty retail sector grew steadily during the 2002-2006 period, with a compound annual growth rate around 5%.

The most important segments of the market are electronics and appliances, jewelry, sporting goods, music, and books. The prospects for the sector are good, as consumer confidence remains strong, despite the dampening effect of rising interest rates. However, it is the rapid growth of online music and video downloads that is expected to be the key driver of growth going forward. This should also sustain demand for associated electronics, such as MP3 players.

While the majority of revenue is generated by store sales, online ordering systems are gaining significance as Internet penetration rates grow. The relatively weak status of the dollar has also attracted many international consumers to purchase via US websites. Many US sectors are currently suffering cost pressures due to high fuel and energy prices, and specialty retail, with its need for transport and distribution services, is no exception.

The leading specialist players in the sector include Best Buy, Barnes & Noble, and Tiffanys. Many companies in the sector are consolidating assets and knowledge, benefiting from economies of scale, and outsourcing services. This consolidation has been necessary in order to compete with traditional and online multi-retailers, such as Wal-Mart and Amazon, which have gained considerable market share in many of the product segments included in the specialty retail sector.

Key Issues

High-End Merchandise - Reflecting rising disposable incomes, consumer tastes are increasingly for high-end goods, which are best catered for by specialty stores. Designer apparel stores are especially benefiting from this shift, prompting mainstream apparel retailers to commission ranges of clothing from fashion designers.

Store Environment - Specialty retailers are focusing on improving shopping experiences by providing more comfortable, ergonomic store environments. Specialty retailers can use improved store environments to differentiate themselves within the marketplace, especially against larger discount retailers, within which such qualities are generally lacking.

Fuel Costs - High fuel prices are reflected by the increased transport and distribution costs of products. Although many costs are passed on to customers, the high degree of price competition within retail markets restricts the extent to which retailers can hike prices. Companies need to balance reductions in profit margins against the maintenance of customer loyalty and market share.

Significant Trends

Online Retailing - In response to growth in online shopping, retailers are prudent to keep up to date with advances within the sector. Investment in innovative technologies to simplify the customer interface and maximize the coordination of inventories will enable retailers to maximize revenue and sustain growth moving forward.

Supply Chain Management - Retailers can benefit considerably from more efficient supply chains, prompting the introduction of automated merchandise planning systems to assist with inventory and forecasting demand. Inventory management systems are helping to optimize product replenishment and shorten lead times. In addition, Radio Frequency Identification Tags (RFITs) are being employed by the retailers to develop faster stocking and tracking procedures.

Consumer Intelligence - The analysis of consumer trends and purchasing patterns has become a key tool in the management of retail operations. Companies gain a distinct advantage in using such intelligence to drive marketing strategies, design store layout, and build product inventories.

1 comment:

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