Reading beyond the headlines: What's really happening in Retail?
KFP Blog - August 20, 2019
There is an on-going debate as to whether physical retail stores still have a place in today's retail market-place.
The rise of online and why physical retail stores are still relevant
Retail figures in the US continue to be strong, as they have demonstrated for the last few years. In the last 2.5 years alone, over 8,575+ retail stores have been opened throughout the US. The success is not only in new store openings but In terms of revenue, total US retail sales increased to $565.7b.
In 2019, new retail stores increased their estate by roughly 56% with the total number of stores closing actually decreasing by 68% compared to last year. Is the US retail decline over?
Year by year growth
Historically, from 2017 through to 2018, US retail sales grew on average by +5.0% with convenience, DIY and grocery stores performing the best.
It is often noted in the media that retail stores are closing faster than they are opening. These statistics show a very different picture in the US retail market. The majority of stores struggling in today's climate were department and soft good stores.
The best performing segments of retail was apparel which has been performing way above expectation.
The Rise of Online
It is no surprise that eCommerce has disrupted the physical retail space and is a popular purchasing choice amongst millennial customers. Today, online e-commerce accounts for only 19% of all retail sales currently. It is predicted that eCommerce will account for 25.7% of retail sales by 2021 however even with this predicted growth, stores will still be involved in 81% of all retail purchases, demonstrating their continued importance in the future of retailing.
The problems with private equity and why short-sightedness causes retail decline (profit before the customer)
A recent Bloomberg article by Lily Katz suggests that “private equity has killed 600,000 Retail Jobs” (Katz, 2019) suggesting that the retailers who struggle the most, are the ones backed by private equity.
The problem with private equity in today's tough retail market is that with such a focus on profit and willingness to reduce retail estate size, that innovation and customer experience becomes an afterthought, therefore hindering the retail brand and its sales potential.
One key commenter has said, "private equity has given retailers the opportunity and capital to expand, the only issue with expanding is over-expanding, and this is one of the reasons why some retailers are struggling.
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