This is a follow up to Sunday’s post on my visit to the National Retail Federation show. Out of the sessions I attended there were five topics I thought were particularly noteworthy this year:
1. Threat of US Economic Recession looms over the retail industry in 2008. There is an air of caution in the market. Retailers at NRF discussed plans for fewer new store openings in 2008-9 and the heightened competition to gain the trust, loyalty and spend of an increasingly demanding consumer. Perhaps, most interesting to me was a slide that Deloitte Researched showed of the US household mortgage market in 2008. The chart illustrated the number of mortgages per month that will convert from the introductory, low-end teaser rates consumers have enjoyed in the past few years to the higher-fee, adjustable terms popular with ARMs. While, many of us would like to believe that the worst of the US mortgage crisis is over, this chart showed otherwise. The transition to adjustable rate terms for mortgage holders will peak this year between the months of January and July. Unfortunately, this leaves little hope for an improvement in the global credit markets or consumer spending patterns in the near future.
2. US Port Diversification – In addition to fears about the looming economic recession, there is a growing concern about the capacity of the US transportation infrastructure. Specifically, there is a great deal of concern about the West Coast ports of Long Beach and Los Angeles, California, which together handle about 40% of the US import trade. Negotiations with the labor unions that work these ports are scheduled to commence early this year. If mutually acceptable terms are not reached by summer, a potential labor strike could cripple the import process. One panelist on a supply chain forum stated that a work stoppage at a critical West Coast port would represent an economic loss of up to $150M per day. Needless to say this has retail leaders and their shareholders very concerned. As a result, retailers such as JCPenney have developed “Port Diversification” strategies to reduce dependency on West Coast hubs. For example, Penney’s now re-routes their Indian sub-continent imports through the Suez Canal to an East Coast port. Merchandise destined for the Midwestern states is routed through the Seattle-Tacoma port then hauled via rail freight to local distribution centers. Penney’s is also experimenting with a port called Lazaro in Mexico. Container freight imported to Mexico can be transferred to rail lines via intermodal links then easily transported to Midwest destinations such as Houston, Fort Worth, Kansas City and St. Louis.
Kansas City Southern's Rail Network
Key US West Coast Ports
3. Department Stores making a comeback – WSL’s (www.wslstrategicretail.com) study on How America Shops found that 27% of US shoppers visited a department store weekly in 2007 as compared to only 17% in 2006. The trend was further supported by Deloitte Global Powers of Retail 2008 study, which found that retailers of fashion goods experienced an impressive sales growth of 8.5% on average. Not only are the sales of department stores and apparel retailers growing, but the profit margins are increasing as well. Deloitte’s study revealed that fashion retailers boasted the highest profit margins of any segment (5.2%). Who benefits from these trends? The US retailers (Macys, J.C. Penney, TJX, Gap and Kohl’s) certainly will benefit as they claim the top 5 positions globally in terms of sales. However, I think European-based retailers will benefit as well. European chains, in my opinion, such as Inditex (Zara) of Spain; LVMH’s Sephora of France and H&M of Sweden are among the most innovative in the department store and fashion sector.
4. Presidential Primaries drive the Food Market – Dr. Ira Kalish of Deloitte Research gave a fascinating insight about the relationship between the food market and the US presidential elections. As most Americans learned earlier this month the Iowa Caucuses continues to be one of the most influential events in the US Presidential election race. Most US senators and congressmen have ambitions of some day reaching the Oval Office as either the Commander-in-Chief or the #2. Not surprisingly such ambitions drive most politicians to be unusually sensitive to the needs of the Iowa population, which is in large part represented by the agriculture industry. As a result, there is strong support in the US Congress for Iowa’s rapidly growing ethanol-based biofuel business. But every acre of farm space devoted to energy production is one less acre reserved for producing food products. So not only are rising energy prices driving up food prices due to higher transportation costs, but additionally energy firms are reducing the available food supply by consuming key agricultural products for use in alternative fuels.
5. Web 2.0 Impact is Real – WSL told a great story about a pair of teenager’s process for selecting a prom dress, which I think summarizes the complexities of today’s multi-channel buying process. As you would expect, the first action the two teens took was to visit high-end retail stores to try on dresses. Here is where it gets interesting – they visited the stores with no intention of actually buying anything. Instead, the purpose of the trip was to get photos of themselves in the gowns they liked the most. Using the camera on their mobile phones, they took pictures which they then uploaded to Facebook to share with their friends. Using an on-line voting process with their social network, they decided which gown to buy. And, of course, to purchase the actual gown they didn’t return to the original stores they visited. Instead they researched prices, colors and sizes online to find the best value before making a purchase.
More information on the show including some of the presentation handouts can be found online at:
http://events.nrf.com/annual08/public/enter.aspx
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