The Slump of Sales Growth of the Retail Industry - Research Proposal Example

The slump of sales growth of the retail industry in US The problem of economic crisis and its related issues to growth of retail industry with regards to sales and employment will be studied through review of literature. Published and confirmed data are gathered to draw trends, outlook and opportunities to find out the present status of the retail industry. The encompassing figures on industry growth comparison are done to understand its position and relationship. Finally, the factors that contributed to positive or negative results are reported to present industry performance during the period of review. 1. Statement of the Problem The financial crisis brought to halt economic activities in the world. Particularly affected is the retail trade industry which comprises a large segment of consumer sales. This study will provide an insight and over view to answer the question, “How has the retail industry performed over 2008?” It will particularly address employment issues and factors that affect the retail industry 1.1 Overview of the research problem The research is being conducted to find out the issues created by the economic crisis to the growth of retail trade industry in terms of sales and employment. 1.2. Goal of the study To be able to describe the extent of the effect of the economic crisis to the retail industry in terms of employment and sales figures 1.3 Indication of why the problem is worth exploring. There are a big number of consumers in US, a representative number of labor forces in the retail trade industry, and billions of dollar investments in retail industry that has been in one way or another adversely affected by the economic crisis. 1.4 What contribution the study is apt to make to theory and practice. The result of information gathered from the study could be used for policy directions and guidance. 1.5 Narrowly focused definition of the problem. Specifically, the study will focus on the performance of the retail industry in 2008 and forecast for 2010. Study will answer the following question. “What are the key elements that affected performance of the retail industry in 2008?” An overview of the industry will give an insight to the growth of the retail industry and its underlying problems on this year, and onwards. 3 Methodology. Archival information will be gathered from existing journals, web reports and information and cross referenced for validity. The number of literatures to be reviewed will depend on the availability of references and practical use to study. Research instruments to be used are data collection and gathering thru published literatures. Published data will come from reliable information providers and knowledgeable organization that can support information. 4. Hypotheses that will be answered in the review of literature is the question, “Are sales and employment growth affected by the economic crisis.” 5. Review of the Literature 5.1 Context of the review study Studies on previous sales growth of the retail industry will be reviewed and compared with the present situation. News, reports and other allied information about employment and sales in the industry will be shown. Similar situations in other countries will also be presented to show that this is a real situation. 5.2 The review of literature. The review of literature supports the hypotheses statement, “Are sales and employment growth affected by the economic crisis.” The global economic crisis is an overused cliché, but it has made an impact on the retail trade industry. First, the growth of the retail industry felt the slump during the 2008 onwards, and it is forecast to move on till 2010. Second, employment was badly hurt by recession that cut offs are unavoidable in many retail institutions in the United States. These undue activities have affected the performance of the retail industry not only in US but worldwide. This study will look at the studies on the past performance of the retail industry and the forecast on future trends that could be used as benchmark analysis in this report. One of the reasons for slump of retail industry growth is the increase in prices. According to Plunkett Research, in 2008, revenues in retail sales was high because it has matched the high price of gasoline, but this has inverse relation to consumer spending as consumer has restricted their spending on other retail items. Free Library, on the other hand, said, the easing up of oil prices in the second quarter of 2008 has beefed up consumer spending and pushed sales in retail slightly towards end of 2008. (Free Library, 2009) As sales decline, the effect to employment in the retail industry is also felt as companies started lay-offs. The retail industry is probably one of the largest industries in the world judging by the number of its employees. In US alone, according to Plunkett Research done in 2008, retail industry has more than 15 million employees, working on gasoline, automobiles, food service and merchandise. This number is reported to decline according to several estimates. Barbara Farkan, in a study about retail industry, said downsizing and reduction of retail workforce in US retail industry will continue up to 2009. According to Farkan, about 500,000 workers will lost its job in the industry. This number represents 20% of the 2.6 million layoffs in US for 2009. (Farkan, B, 2009) Not all companies want to have lay offs because while predictions on cut off on employment is raised, there are certain sectors in the retail industry who would like to post measures rather than layoffs. Brenda Dumont, (2009) in a report, cited result of survey that companies work on cost cutting measures rather than laying off employees. Some of cost cutting measures according to Dumont, were reduction in travel expenses, cut down on working hours, cut down on bonuses, holiday parties, freezes of salary hikes and hiring and other cost cutting measures. Sales decline is leading to closures of retail stores which have already begun. Analysts have predicted this outcome in 2009. For instance, About.com, a leading analyst said that it is difficult to predict the actual number of retail business closures, but it is predicted to happen “in as many as 200,000 times.” The reasons for closure, About.com said, are because of the stores’ own debt structure and a “recessed economy demands”. (2009) In UK, the Society of Motor Manufacturers said ?sales of new cars in February were 22 per cent lower than last year, down from 69,610 to 54,359. It called on the Government to provide the industry with “urgent” assistance.” (Evening Standard, 2009) In conclusion, the literature review has supported claim that employment and retail trade industry has suffered from the economic crisis on varying degrees and situation, and supports valid reason for an in-depth understanding of the industry outlook. 5. Analysis and discussions. An Overview of the retail trade industry comparing its performance over a two year period will give an insight on the position of the industry. The retail trade industry in US is composed of 13 sectors. It has a combined sales total of US$Bil. $4400 in 2008, lower than the retail sales for 2007. Details of each category will be explained in the following retail industry overview of U.S. (Plunkett research, 2008) U.S. Retail Industry Overview Amount Unit Year Source Total Retail Sales in 20081 4,400 Bil. US$ 2008 PRE Total Retail Sales in 20071 4,483 Bil. US$ 2007 Census Total e-Commerce Retail Sales in 2008 145.6 Bil. US$ 2008 PRE Total e-Commerce Retail Sales in 2007 124.6 Bil. US$ 2007 Census Motor Vehicle & Parts Dealers 919.3 Bil. US$ 2007 Census Furniture & Home Furnishings 118.7 Bil. US$ 2007 Census Electronics & Appliance Stores 111.4 Bil. US$ 2007 Census Bldg. Materials & Garden Equip. & Supplies Dealers 337.2 Bil. US$ 2007 Census Food & Beverage Stores 560.6 Bil. US$ 2007 Census Health & Personal Care Stores 237.4 Bil. US$ 2007 Census Gasoline Stations 445.2 Bil. US$ 2007 Census Clothing & Accessories 224.7 Bil. US$ 2007 Census Sporting Goods, Hobby, Book & Music Stores 87.3 Bil. US$ 2007 Census General Merchandise Stores 576.4 Bil. US$ 2007 Census Miscellaneous Store Retailers 118.8 Bil. US$ 2007 Census Nonstore Retailers 303.4 Bil. US$ 2007 Census Food Services & Drinking Places 442.3 Bil. US$ 2007 Census Annual Disposable Personal Income per Capita, 2007 33,667 Current US$ 2007 BEA Annual Disposable Personal Income per Capita, 2008 35,152 Current US$ 20082 BEA Total Exports of Goods 1,162.7 Bil. US$ 2007 ITA Total Imports of Goods 1,953.7 Bil. US$ 2007 ITA Number of U.S. Shopping Centers3 90,786 Source: Plunkett Research, 2008 5.1 On line marketing, e-Commerce. The introduction of e-commerce or online marketing can be seen as a new trend in retail sales, giving traditional retail traders a stiff competition. In 2008, there is an unexpected growth of e-commerce sales from $124.6 USBil in 2007 to $145.6 in 2008. The growth of e-commerce marketing has been brought by the fast internet technology and the convenience of ordering even when one is at the office desktops. (RocSearch, 2006) In addition, the aggressive on line marketing strategies of amazon, Wal-Mart, e-bay and the likes of these companies are also contributing to the decline of regular retail traders. Online sales have projected to be $136.8 billion in 2008, a growth rate slightly lower than 19.8% growth rate of 2007. (RocSearch, 2006) This growing trend of the emerging e-commerce retail marketing does not seem to be abated by economic crisis. The report of Williamson, D. (2007) shows an increased interest of people in social networking and has accounted for 41% of the US internet user population. Shown below is the demographic profile of social network users that could be used by on line marketers in turning it to profit Source: Williamson, D. 2009. Car sales. Car sales are one of the biggest hit sectors of retail industry. This is disclosed by Wall Street Journal, on March 23, 2009 that reported sales of car as of February 2009, showed a negative 37.4 % reduction in the total cars sold comprising of midsize, small, luxury and large. Details of the report showed US consumers favored midsize cars from the luxury and large cars. This preference for smaller cars is an indication of an opportunity for growth for plastics manufacturers, ICIS news reported in Houston. This report said that consumer trend growing in US goes for lighter and more fuel efficient cars, and could increase demands in plastics. (Greenwood, A. 2008) Disposable personal income. Economists relate disposable income to consumer spending. Chart below explains the gap between consumer spending and personal disposable income. Source: Mulligan, C. 2009 Annual Disposable Personal Income per Capita, 2007 33,667 Current US$ 2007 Annual Disposable Personal Income per Capita, 2008 35,152 Current US$ 20082 Source: Plunkett Research, 2008 In 2008, it will be observed that the amount of annual disposable personal income per capita has increased in 2008 as compared to 2007. Mulligan, a Professor of Economics, writing for New York Times, has pointed out that in spite of the increase of DPI, consumer spending does not follow and chart shows it has been dropping. Mulligan has interpreted this chart as related to the attitude of consumers’ “recognition that their homes and business are worth less”. It will be recalled that defaults on home mortgages and business are one of the causes of economic decline. (Mulligan, C. 2009) Other retail sectors. The increase of retail sales in some sectors in January 2009 has surprised analysts as this is contrary to their expectations. According to the report of Susan Dickenson (2009) in Home Accents, the National Retail Federation reported increase of sales on a month to month basis on selected areas. The average estimates of retail sales provided by the US Dept. of Commerce and the National Retail Federation are cited by Dickenson in her report and are summarized below. (Dickenson, S. 2009) * Combined value of distributive trade sales for January, 2009 is estimated at $1,004.billion down by 14% from January, 2008 (US Census Bureau, 2009) * The seasonal growth of sector retail sales grew on a month to month basis, but suffered an average decline as compared to 2008 performance. * Sales of furniture and home furnishing grew by 0.7% from January 2009, but down by 1.8% over last year. * Sales of electronics and appliance stores increased 1.2% but decreased by .0% from last year. * Clothing and clothing accessory stores sales rose by 2.8% but decreased by 6.5% from last year. 6. Findings and conclusion. Sales and revenue of the retail industry have declined as a result of the shrinking economy in 2008 and tends to carry over for 2009 until 2010. The changes in buying patterns in the car industry from luxury and big cars to small cars have opened a new trade opportunity for plastics as this becomes the major component of small cars. This is also an indication that car manufacturers in US must change design or put a move to address this need. The growth of social networking in purchasing behavior of US consumer is an indication that retail trade sales is moving on, only this time, it has changed course of buying habit, brought about by fast IT technology. The non-store format has grown for the past years, and retailers must move forward to take advantage of this trend. The consumers now are more conscious of spending and buying only the necessities as their personal disposable income rises and consumer spending drops. The average sales of retail sectors are slowly moving up but still low compared to previous years’ sales performance. Unemployment cannot be avoided due to closures of stores and sales decline, but some measures are done to curb the number of layoffs. End. References About.com. (2009, March 21) Retail Industry. Retrieved March 24, 2009 from http://retailindustry.about.com/od/statisticsresearch/a/retaillayoffs.htm Dickenson S. (2009, March 12) Retail Update Feb. sales of furniture & home furnishings up 0.7% over January, 2009. Home accents today Retrieved March 25, 2009 from http://www.homeaccentstoday.com/blog/240000224/post/1200041920.html Dumont, B. (2009, Feb. 25) Companies working to maintain work forces. Retail Review. Retrieved March 25, 2009 from http://communities.canada.com/working/blogs/retail/default.aspx Evening Standard. (2009, March 05) House prices and new car sales both slump. Retrieved March 24, 2009 from http://www.thisislondon.co.uk/standard/article-23658234-details/House+prices+and+new+car+sales+both+slump/article.do Farfan, B. (2009, March 21) Retail Industry. About.com. Retrieved March 23, 2009 from http://retailindustry.about.com/od/statisticsresearch/a/retaillayoffs.htm aabout.com Free Library. (2007, Feb, 19) Retail Industry. Retrieved March 23, 2009 from http://www.thefreelibrary.com/Read+an+In-Depth+Review+of+the+US+Retail+Industry+in+New+Report-a0159500304 Greenwood, Al. (2008, June 15) US Car light car tend boon for plastics. ICIS News. Retrieved March 23, 20009 from http://www.icis.com/Articles/2008/06/05/9130139/us-light-car-trend-boon-for-plastics.html Mulligan, Casey B. (2009, March 11) More to spend, but less spent. New York Times. Retrieved March 23, 2009 from http://economix.blogs.nytimes.com/2009/03/11/more-to-spend-but-less-spent/ Plunkett Research. (2008, December 03) Retail Statistics. Retrieved March 23, 2009 from http://www.plunkettresearch.com/Industries/Retailing/RetailingStatistics/tabid/268/Default.aspx Research and Market. (2006, December) The US Retail Industry: Annual Review. Retrieved March 23, 2009 from http://www.researchandmarkets.com/reports/445357 RocSearch Ltd. (2006 February) US Retail Industry. An analysis. Retrieved March 24, 2009 from http://www.researchandmarkets.com/reports/323844 US Census Bureau. (2009, March 12) Manufacturing and Trade Inventories and Sales. Retrieved March 24, 2009 from http://www.census.gov/mtis/www/mtis_current.html Wall Street Journal. (2009, March 25) Auto Sales.. Retrieved March 25, 2009 from http://online.wsj.com/mdc/public/page/2_3022-autosales.html Wall Street Journal Auto sales. Williamson, D. (2007, December). Social Network Users. eMarketer. Retrieved March 23, 2009 from http://www.emarketer.com/Report.aspx?code=emarketer Read More