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Retail Business Environment

Notes total spending for many years, even decades; thus, we do not see this as an unusual shift in
consumer behavior. However, key factors behind the change in spending habits, are changing.
Additionally, rising health and medical and transportation costs are capturing a larger portion
of the consumer dollar.
The diminished China factor: The benefits of manufacturing goods in China were significant, as
increased, lower-priced imports reduced the average cost of apparel and footwear over the past
20 years. Those benefits are now gone due to higher material and operating costs in China, as
well as capacity restraints. Efforts to shift sourcing and increase supply chain efficiencies have
attempted to provide an offset, but this is only a temporary solution.

Is an aging population to blame? Baby boomers and Generation Y are often cited as responsible
for the shift in consumption patterns. Obviously, the need and reason to purchase apparel and
footwear is changing as the population ages, reflecting a leveling in income and increased
spending on other necessities. This, however, only tells part of the story, in our view.
Lower price points are an ongoing phenomenon: Increased promotional activity and greater
accessibility to off price and alternative channels of distribution have had a marked impact on
pricing and consumption. Increased private label merchandise has also been an important
contributor to an enhanced value proposition for the consumer. These are likely to continue to
be important going forward, but could have less of an impact.

The effectiveness of promotions and discounting: Retail pricing strategies could push prices
lower, perhaps offset by reduced promotions. Importantly, the issue is whether promotions and
discounting actually stimulated increased consumption, or were keys to retailers’ quest for
market share. Studies have been inconclusive. They probably did not impact the need to purchase
overall, although likely created a higher demand to purchase.
It’s all about market share: A rising tide will not lift all ships, nor will reduced consumption
negatively impact all retailers and vendors. Rather than get caught up in some of the above-
mentioned trends, it is important to focus on the consumer. Employment and income are still
rising, and consumers will likely continue spending as they have been. Opportunity for growth
lies in the ability to create the want to purchase rather than catering to the need to purchase.
There are plenty of places to buy “stuff,” and there, price is generally the determinant.

Consumer research is key for profitable growth: Knowing why your target customer buys or
does not buy your product is instrumental in your ability to capture a larger share of their
wallet. This can be a more profitable strategy than trying to force the consumer to buy something
you think they want, and at possibly the lowest price in the market.

5.2 Government’s Macroeconomic Policies in Retail Industry

The characteristics that describe a macroeconomy are usually referred to as the key
macroeconomic variables. The following four variables are considered to be the most important
in gauging the state or health of an economy: aggregate output or income, the unemployment
rate, the inflation rate, and the interest rate. These will be briefly discussed shortly. It is, however,
prudent to point out that numerous additional measures or variables are collected and used to
understand the behavior of an economy. In the United States, for example, these additional
measures include: the index of leading economic indicators (provides an idea where the economy
is headed in the near future); retail sales (indicates the strength of consumer demand in the
economy); factory orders, especially for big-ticket items (indicates the future growth in output,
as orders are filled); housing starts (usually a robust increase in housing starts is taken as a sign
of good growth in the future); the consumer confidence index (indicates how likely consumers
are to make favorable decisions to buy durable and nondurable goods, services, and homes).
Sometimes, the variables tracked are more innocuous than those included in the preceding list,

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